Minutes | Board Audit Committee (BAC) Meeting 16 October 2020

BAC Attendees: Sarah Deutsch (Chair), Avri Doria, Danko Jevtović, Merike Käo, Akinori Maemura, Mandla Msimang

Other Board Member Attendees: León Sánchez

ICANN Organization Attendees: Michelle Bright (Board Content Coordination Director), Xavier Calvez (SVP, Planning and Chief Financial Officer), Franco Carrasco (Board Operations Specialist), Samantha Eisner (Deputy General Counsel), John Jeffrey (General Counsel and Secretary), Becky Nash (VP Planning), Brett Peterson (Director Accounting), Shani Quidwai (Sr. Director Finance), Lisa Saulino (Board Operations Specialist) and Amy Stathos (Deputy General Counsel)

Invited Guests: Representatives from independent auditor firm and BAC's independent advisor

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

1. BAC Workplan – The BAC reviewed the Committee workplan, which is on target.
2. Review of Draft FY20 Audited Financial Statements – The BAC received a brief overview of the draft FY20 audited financial statements focusing on a few specific points. In particular, ICANN org noted that the draft FY20 audited financial statements identifies the ASU 2018-08 accounting pronouncement that was adopted by ICANN org effective 1 July 2019. The purpose of ASU 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, is to assist entities in: (i) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) or as exchange (reciprocal) transactions subject to other guidance; and (ii) determining whether a contribution is conditional. The adoption of ASU 2018-08 did not have a material impact on ICANN's financial statements. ICANN org also pointed out that this year's audited financial statements include some disclosure footnotes regarding COVID-19 and its impact on ICANN.

3. Review of the Required Audit Committee Presentation by Independent External Auditor – A representative of ICANN org's FY20 independent external audit firm reported on the status and results of its FY20 annual audit. The audit firm explained that main purpose of the audit is to obtain reasonable assurance about whether the consolidated financial statements of ICANN org are free of material misstatements. The audit firm reported that the FY20 audit is substantially completed and the audit firm is currently in the process of completing its final review, with the expectation that the numbers will not change and only formatting and small wording changes will occur before delivery of the final audit report. The audit was conducted in accordance with auditing standards generally accepted in the United States and the scope of the work was not substantially different than what was presented to the BAC in prior presentations. As noted above, ICANN org adopted ASU 2018-08 and that adoption did not have a material impact on ICANN's consolidated financial statements. The audit firm reported that ICANN org's accounting practices and policies are appropriate, comply with generally accepted accounting principles and industry practice, were consistently applied and are adequately described in the financial statements; that the revenue recognition for fee revenue and new gTLD revenue were recorded appropriately and reasonable; that expenses appear reasonable and classified; that accounts receivable and allowance appear reasonable; that investments, investment income and realized and unrealized gains and losses were properly stated and reasonably valued; that property, plant, and equipment appears to be reasonable; that cash appears to be properly stated; and that net asset classification appears to be properly stated. The audit firm also reported that PTI appears to be properly consolidated into ICANN org's financial statements and expenses appear proper. The audit firm noted that ICANN org management's cooperation was excellent and that the audit firm received full access to all of the information it requested during the audit. The audit firm explained the changes observed in ICANN's presentation of its financial statements from the prior year, were done in accordance with new reporting standards for nonprofit organizations. The audit firm also outlined the key areas it focused the audit on, including ICANN org's revenue. No issues with identified with the areas of focus.

   The audit firm also performed a review of the quality of ICANN org's financial reporting and found no significant deficiencies or material weaknesses. It was noted that the audit firm and the org identified a discrepancy between two investment statements provided by two different divisions of one investment firm. The org indicated that it has put in place an improved process reconciling statements from two arms of investment firms on a periodic basis. The audit firm also reported that no violations of laws or regulations or fraud were identified as part of the audit, and the firm is not aware of any reports or complaints against the organization in this respect. The audit firm also noted nothing unusual regarding ICANN org's related parties and transactions. BDO had no disagreements or difficulties with ICANN org management on any accounting or audit matters and had no other matters that required communication to the BAC.

   The BAC also heard from the Committee's independent advisor, who reported that he is very satisfied with the consolidated financial statements, which incorporate all the information that should be covered.

4. AOB – ICANN org provided the BAC with a summary of the newly established Planning Function within the org.

Published on 02 November 2020