The CFO, the board and the audit committee: building the relationship
The board and the audit committee are among the CFO's most important counterparts. How to set up the information flow, and what Turkish commercial law says about board committees.
The relationship between the CFO and the board determines how a company’s financial information reaches its highest decision-making body. The board approves strategy, oversees risk and holds management to account, and every one of those duties depends on reliable financial information. The audit committee is the board’s specialist arm for overseeing financial reporting and internal control. In this article I look at the CFO’s responsibilities towards both bodies, how to design the flow of information, and what Turkish commercial law says about board committees, which is the framework my clients in Turkey operate under.
What does the board expect from the CFO?
The board’s expectations of the CFO fall under three headings:
- Reliable, timely information: the board wants to see the company’s financial position and performance without getting lost in detail, but without missing anything important.
- An independent view: the CFO is part of management, but should be able to interpret the numbers independently of management’s optimism.
- Early warning: informing the board about cash, debt capacity, control weaknesses or regulatory risks before they grow.
IFAC’s discussion paper on the CFO role describes the CFO as one link in a chain of accountability that also includes the board, the CEO, the audit committee and the auditor. Seen this way, the CFO’s role towards the board is not just to present reports but to make sure their link in the chain holds.
Board committees under the Turkish Commercial Code
Turkey’s Commercial Code (Law No. 6102) allows boards to set up committees and in some cases requires them. The provisions a CFO should know are:
- Power to form committees (Article 366): the board may set up committees, which may include board members, to monitor the conduct of business, prepare reports on matters submitted to it, have its decisions implemented or carry out internal audit.
- Early risk detection committee (Article 378): in companies whose shares are traded on a stock exchange, the board must set up an expert committee to detect early the causes that threaten the company’s existence and continuity and to manage risk. In other companies the committee is set up when the auditor considers it necessary and notifies the board in writing. The committee reports to the board every two months.
- Statutory audit (Article 397): the financial statements of companies subject to audit are audited under Turkish Auditing Standards issued by the Public Oversight Authority, and the consistency of financial information in the annual report with the audited statements is also within scope.
For listed companies, the Capital Markets Board’s corporate governance rules add further committee requirements, notably an audit committee. In those companies the committee structure and member qualifications should follow the current text of the relevant communiqué.
For unlisted companies a committee is usually not mandatory, but it is useful. Having one board member focus on financial reporting and control makes board meetings more productive.
The audit committee agenda and the CFO’s role
Despite its name, the audit committee does not deal only with the external audit. A typical agenda covers:
| Agenda item | The CFO’s contribution |
|---|---|
| Periodic financial statements | Explaining key estimates, accounting policy choices and unusual transactions |
| External audit plan and findings | Coordinating with the auditor; management’s response and a remediation timetable |
| Internal control and internal audit | Status of control weaknesses and the progress of improvement projects |
| Significant risks | Measurement of financial risks (liquidity, FX, interest rate, credit) and management actions |
| Compliance and ethics | Tax and regulatory compliance; financial matters raised through whistleblowing channels |
There is an important balance here: the audit committee oversees the CFO’s work. It is therefore good practice for the committee to meet the external and internal auditors without the CFO present. The CFO should see such sessions not as a sign of mistrust but as a natural part of the system.
Designing the information flow
The quality of information given to the board and the committee depends on its structure, not its length. These principles help:
- A fixed calendar: meeting dates are set at the start of the year and the finance pack is sent early enough for members to read it.
- A fixed structure: the report uses the same headings every period, so members can see trends and spot what has changed.
- Summary versus detail: the main body covers items that need a decision or attention; detailed tables go in an appendix.
- Decisions clearly flagged: whatever the board is asked to decide or comment on should appear as a separate agenda item.
- Action tracking: the status of decisions taken at the previous meeting is reported each time.
The same principles apply to the management report more generally. I discussed which indicators it should contain in which KPIs belong in a management report.
Delivering bad news
The hardest moment in the CFO’s relationship with the board is reporting an unexpected negative development: targets that will be missed, a customer in payment difficulty, a control weakness, or a loan covenant at risk of breach. Three principles matter at such moments:
- Tell them early: the board should hear about a problem when it emerges, not when it is being solved. Bad news delivered late damages trust more than the problem itself.
- Size the impact: show the possible effect through scenarios; do not hide the uncertainty, but define its limits.
- Offer options: present the problem together with possible responses and the consequences of each.
Article 376 of the Turkish Commercial Code places specific obligations on the board where capital is impaired by losses or the company is over-indebted. These provisions are a reminder that the board knowing the financial position in time is not just good governance but a legal requirement. The CFO should track in advance when equity is approaching those thresholds and inform the board.
When board members have different levels of financial knowledge
Not every board member has a finance background. The CFO’s job then is to simplify without diluting. Some practical techniques:
- Explain technical terms in one sentence the first time they appear.
- Use amounts and days instead of ratios where possible (“for every 100 owed over the next 12 months, there are 130 of current assets” rather than “current ratio of 1.3”).
- Once a year, run a short briefing for board members on the financial statements and key indicators.
An annual board and committee calendar
The most effective way to make the information flow predictable is to prepare, at the start of the year, a calendar that spreads the financial agenda across meetings. The table below is an example for a company with a calendar financial year and four scheduled board meetings:
| Period | Board agenda (finance) | Audit committee agenda |
|---|---|---|
| January–February | Preliminary year-end results, the final version of the new year’s budget, the funding plan | Year-end audit plan, key estimates and accounting policies |
| March–April | Audited financial statements, dividend proposal, preparation for the shareholders’ meeting | The auditor’s report and management letter, management’s response to findings |
| July–August | First-half results, full-year forecast, causes of variances | Status of internal control improvements, update of the risk assessment |
| October–November | Strategic plan update, framework for next year’s budget, investment proposals | Auditor appointment or reappointment, next year’s internal audit plan |
The calendar should leave room for the unexpected, but knowing the core agenda in advance gives the CFO time to prepare and gives board members the chance to think about the issues beforehand.
Questions board members may put to the CFO
In a well-functioning board, members do not simply listen to financial information; they challenge it. Typical questions the CFO should be ready for:
- When in the next 12 months is the company’s cash need at its peak, and how will that period be funded?
- How much headroom do we have on the financial covenants in our loan agreements?
- What are the significant accounting estimates this year, and how close were last year’s estimates to the actual outcomes?
- Which of the control weaknesses the auditor found last year are still open?
- How much would a reasonable change in exchange or interest rates affect profit and cash?
Answering these questions in the finance pack, before the meeting, lets the meeting itself be spent on decisions.
Conclusion
The CFO’s relationship with the board and the audit committee rests on a regular, predictable flow of information, a clear agenda and the early delivery of bad news. Company law sets the legal frame for committees and for monitoring the financial position; good practice goes further. I describe my approach to financial control and audit on the audit and financial control page. I cover the CFO role as a whole in what does a CFO do, and the systematic monitoring of risk in enterprise risk management.