A survey conducted by the Audit Committee Institute (ACI) of KPMG International and the National Association of Corporate Directors found that although a majority of audit committee members rate their committee as "very effective", some feel improvement can be made-including oversight of accounting judgments and estimates, risk management and agenda setting.

While 70 percent of the 317 audit committee members polled rated their committee as "very effective" and nearly 85 percent rated themselves as "very effective" on ensuring the independence of external auditors from management and accountability to the audit committee, there is still room for improvement.

"With Section 404 compliance processes largely in place, we're seeing audit committees refocusing their agendas on additional oversight issues and activities they feel are most important." Ken Daly, executive director of KPMG's Audit Committee institute, adds, "Most audit committees have been keenly focused on their effectiveness over the past several years, and the capital markets benefit from that focus."

Nearly one in three of the surveyed group said they were not totally satisfied with the committee's oversight management's accounting judgments and estimates, while 60 percent were not fully satisfied with the board or audit committee's oversight management or the processes that management uses to identify and manage the company's risks. Improvement of the approach used to establish the committee's agenda/work plan was concluded as needed by nearly 40 percent.

"Audit committees are developing a greater appreciation for the tentative and "fragile nature of critical accounting judgments and estimates and their effect on the company's financial statements," and Daly notes that complex accounting standards and pressures to meet earnings estimates have added to the risk of errors.

Specific areas of risk identified for room for improvement were in oversight of internal controls (36 percent), financial reporting implications of taxes (59 percent), fraud risks (61 percent) and information security (78 percent). Also, 84 percent had concerns that lengthy checklists of the audit committee's more routine activities could "distract from substantial discussion" of company issues and have a possible negative impact of the overall effectiveness of the committee. About one in three report support from CEO, external audit partner, in-house and external legal counsel, corporate secretary and the full board could be better.

"What we're seeing in these survey results is a combination of healthy skepticism, with audit committees asking more probing questions about critical areas of oversight and a real need to continue strengthening the financial reporting process overall," concludes Daly, noting that the ACI findings show the areas of greatest concern to the audit committees and the issues that may shape the agenda actions in the coming years.