02 Feb Agenda Overload
One of the key findings from the KPMG 2015 Global Audit Committee Survey is that audit committees are in danger of succumbing to agenda overload. In fact 24% of those surveyed commented that their task had increased significantly with a further 54% reporting a moderate increase.
Once simply seen as a ‘figures overview’ body, the role of audit committees now generally encompasses overseeing internal control and risk management systems in addition to financial control. Although FRC guidance does allow for a separate risk management committee and some boards have adopted this practice it is apparent from the KPMG report that the majority of boards still see the audit committee as the repository for risk oversight.
Because of this the four key areas of concern for audit committees are:
- Economic and political uncertainty and volatility
- Government regulation and the impact of public policy initiatives
- Legal & regulatory compliance
- Operational risk and control
Interestingly talent management and development comes fifth on the list of concerns, reflecting a wider concern about the way in which organisations are failing to succession plan for leadership across the board functions. In fact, when asked to rate their performance, 42% rated themselves as ineffective in the area of CFO succession planning, compared to a 2% ineffectiveness rate in respect of overseeing financial reporting and disclosures.
With audit committees playing an important role within the corporate governance mix, any pressure on their time can lead to oversight errors; perhaps explaining why a third of companies have either devolved risk oversight to other board functions or are considering doing so. (25% in previous survey). That there are time pressures is perhaps best illustrated by the fact that 43% of those surveyed believed that their overall effectiveness would be improved with a better understanding of the business (strategy and risks). Other areas singled out for potential improvement included greater diversity, bringing fresh thinkers on to the team and additional committee expertise in technology, M&A, industry knowledge and risk.
What is clear from the KPMG report is the way in which audit committees have embraced their role as overseers of corporate functions and governance. With risk factors ever increasing there is some scope for a re-balancing of roles within boards but in general audit committees are looking to improve their overall levels of understanding in order to step up to the demands of oversight in an increasingly complex and globalised world.