The discussion is focused on executive compensation, which is a very important part of auditing
the business processes of any major organization.
If I had to choose a company to evaluate the executive compensation, I would choose the General
Electric Company. d GE has been in the news lately because of its meteoric fall from grace. Not to
mention, GE made an announcement last week that the company will break up into three
companies. The company has been in free fall. d Long time CEO, Jeff Immelt, left the company more
than a year ago, and his replacement John Flannery was just ousted recently because of his
inability to restore GE to its prior glory. d More recently, Larry Culp was given the reigns to turn the
company around and put it on the path for success. d Each of these gentlemen were highly
compensated executives. In fact, John Flannery's income was just over $9 million. d His salary was
157 times that of the median salary of a GE employee according to executive pay watch. d In my
opinion, I do not think the compensation is fair or equitable. d It is an elite c-suite club of
executives that many will argue are overpaid and overrated. d There is no doubt that senior
executives' compensation should be tied to the long-term performance of the organization. d In
addition, long term contracts are another way to address the agency problem that exists when
senior executives make decisions that affect the day-to-day operations who might be tempted to
act in a way that is contrary to the interests of the shareholders.
PCAOB auditing standard # 12 addresses the consideration of procedures to address the risk of
material misstatement. Also, the auditor should review the minutes and other executive
compensation policies set by one of the ad hoc committees of the board of directors to determine
compliance. d The proxy statements should be examined and the associated reports (e.g., expense
reports and other charges incurred by senior executives).
