Minutes | Meeting of the Audit Committee of the Board (BAC) | 27 July 2023

BAC Attendees: Alan Barrett, Sajid Rahman (Chair), and Katrina Sataki

BAC Member Apologies: Christopher Chapman and Sarah Deutsch

Other Board Member Attendees: Avri Doria, James Galvin, and Patricio Poblete

ICANN org Attendees: Xavier Calvez (SVP, Planning and Chief Financial Officer), Franco Carrasco (Board Operations Manager), Elizabeth Le (Associate General Counsel), Becky Nash(VP, Planning), Shani Quidwai (Sr. Director Finance), and Amy Stathos (Deputy General Counsel)

Invited Guests: Representatives from independent audit firm and BAC Independent Adviser

The following is a summary of discussions, actions taken and actions identified:

1. Agenda review – The Chair reviewed the agenda for the meeting.

2. Presentation from ICANN's Independent External Audit Firm re FY23 Audit – The BAC received a presentation from ICANN's independent audit firm regarding ICANN's FY23 audit. The firm presented the BAC with information on its FY23 audit services, including audit approach, scope, auditor's responsibilities, anticipated timeline and deliverables. The audit strategy is to assess risk in the consolidated financial statements and design the audit procedures accordingly. The audit will include evaluating the appropriate accounting policies and the reasonableness of those accounting policies and estimates that are disclosed in the financial statements. The audit firm informed the Committee of a new accounting pronouncement (ASC 842) which requires companies to classify all leases as operating or financial leases. The Committee was advised that this new standard will be applying a very well-known accounting approach.

3. Timing and Cadence of Future Audit Firm Appointment – The BAC discussed the timing and cadence of audit firm appointment, noting that the common practice in the U.S. is to engage the independent firm on an annual basis while multi-year appointments are more common outside the U.S. The BAC considered the advantages and disadvantages of the different cadences. Following discussion, the BAC agreed to engage and appoint independent audit firm on an annual basis, which is the current practice and which provides more flexibility and reduces potential complacency with firms if they are appointed for multiple years. The Committee also discussed the timing for appointing the audit firm and agreed that it would be prudent to make the appointment approximately six months in advance of the work that pertains to that year (e.g., December time frame of the prior calendar year).

4. Executive Interview Process – The Committee continued its discussion on the utility of executive interview sessions process and whether any changes or enhancements are needed to the structure of the sessions. The purpose of the interviews is to allow BAC members to participate in direct, open dialogue with the executive management team. The interview sessions also provide the Committee with a better understanding of the structure and relationships between the executives and enable the BAC to better identify any potential pressures that executives might have that could increase overall risks to the org. Historically, the BAC has been conducting approximately three interviews per year. The BAC discussed that the interview process can be improved in a way that executives and BAC members can both have flexibility in terms of how and when interviews are conducted. The Committee observed that the interviews, while a good theory in practice, can turn out to be mechanical rather than informal discussions. The Committee also discussed whether the interviews should be expanded beyond Executives to other org employees in managerial positions. The BAC agreed to provide org with the names of org members that the Committee would like to interview at the next session, which is currently scheduled to take place during ICANN78.

   • Action: The BAC to provide the names of ICANN org members who BAC would like to interview at the next session.

5. Internal Audit Function – The Committee considered a proposal to implement an internal audit function. The Committee noted that the role of internal audit is to provide assurance that an organization's risk management, governance and internal control processes are operating effectively. The Committee further noted that an internal audit function is a valuable operational assessment and quality control mechanism often utilized by publicly traded companies, private companies and not-for-profit organizations alike. The Committee discussed whether the internal audit function should be established internally by ICANN org or outsourced to a vendor, noting that while both have the same objective, there are many differences between them. The Committee considered the benefits of both options and supported the idea of engaging an external vendor to perform the internal audit function. The Committee noted that using an outsourced internal audit function allows the org to leverage on the experience and expertise of the vendor as well as bandwidth advantage. The Committee agreed to provide an update to the Board and asked ICANN org to prepare relevant materials.

   • Action: ICANN org to prepare relevant materials.

6. Review of Audit Committee Charter – The BAC noted that it will conduct its annual charter review at a future meeting.

7. IRS Form 990 – The BAC received a high-level overview on the IRS Form 990, which is ICANN org's annual information return, that was filed on 9 May 2023. Although there is no legal requirement for a non-profit organization's Board of Directors or its Committees to review or approve the organization's Form 990, ICANN org has historically shared its completed ICANN Form 990 with the Board and BAC. ICANN org reported that there were no significant or atypical items associated with the information presented in the filed Form 990. ICANN org noted that the Form 990, which is for the year ended 30 June 2022, included compensation data from calendar year 2021 and financial information from fiscal year 2022.