Where do you start? The requirement for a non-financial services company is that you can demonstrate “recent and relevant financial experience”.

This is generally interpreted to mean that you have some form of financial qualification, and can refer to a business role in which you have practised financial expertise.

Beyond this, audit committee chairs can be varied. The vast majority have an accountancy qualification, although some boards will appoint a non-executive with banking or actuarial experience.

In my experience that is unlikely to occur through a search process, but more through being in place on the board as a general non-executive, and being valued by colleagues sufficiently to be appointed internally as the audit committee chairman.

Appointing someone without the conventional accounting qualification does open up the board to a level of risk in the event of accounting irregularities. So the first step is to be finance-qualified.

Recent and relevant experience

The second is to demonstrate your recent and relevant experience. This can take many forms but is most often as a finance director of a publicly quoted company, or as an audit partner in one of the big firms.

The sector experience is not generally seen as a key attribute—somewhat surprising when one considers how specific some accounting expertise now is.

However, it should not be forgotten that the audit committee chairman relies heavily on the audit partner for guidance on areas of concern or judgment, particularly in the early stages of appointment.

First role

When looking for your first role it is useful to accumulate prior general experience as a non-executive, so that you have had the opportunity to view the workings of audit committees without leading them. Audit committees do vary widely in their working. There are two main determinants:

1. Is the membership of the board and the audit committee the same? This is usually the case in smaller boards and typical of companies below the FTSE 250.
2. Is the audit committee looking for in-depth technical discussion of accounting treatments or a broader financial/risk expertise?

In general where the board and audit committee have the same membership the lines between the two become blurred, and some issues that you may expect to be in the committee are in the board—which, of course, you are not chairing.

This is fine but can lead to difficulties if the board chair has a different approach to risk, or some other matter, than you as audit committee chair.

However, audit committees of this nature are often a good way to gain experience, because you have the support of the board chairman on hand as you gain experience.

In the second example it is very important, when seeking your first role, to establish what style of chairman you wish to be. Do you want to be involved in the details of accounting treatment decisions for joint ventures, hedging, acquisitions etc; or, are you comfortable with being advised of the outcome? How close to the FD do you want to be—a mentoring-style relationship, another view or just there when there are matters of concern?

Be absolutely clear what the CFO and the board chairman are expecting, or seeking, in this context. When working through the company accounts as part of your due diligence for the role, you should consider whether the accounting treatment appears to be aggressive or not, which auditing firm is employed and be aware of any recent changes.

If accounting policies are on the innovative end it may mean a greater involvement in the accounting technicalities. Often these audit committees are ideal for former audit partners as, in general, their technical accounting knowledge is greater and more current than most CFOs.

Preparation

Be prepared to go to a lot of interviews and recognise that there is as much interest in your personal style and broader business credentials as there will be in your accounting competence. To help in understanding what is wanted in the audit chairman’s role these questions may be useful:

• What sort of things do you discuss in the audit committee now?
• What background does the current chairman have and are you looking for any changes to style or content?
• How much time do you anticipate is needed in and outside the audit committee?
• How experienced is your CFO and how does the board feel about his/her performance? Are there any areas where a significant level of judgement has been applied? Cross-check this answer with the audit partner when you talk to them.

It is important for an audit chairman to remember that they are on the board as a non-executive director first, and as a financial person second. So, equally important is your ability to interact effectively and constructively on general board matters.

Marie-Louise Clayton is a non-executive director and audit committee chairman at Diploma plc and Zotefoams plc.