Increased transparency on how an audit committee has discharged its duties is crucial and enables a more informed assessment of its performance and effectiveness.
AUDIT COMMITTEE OVERSIGHT PROCESS PROFESSIONAL
With the input of IFAC’s Professional Accountants in Business (PAIB) Committee we have been exploring ways to enhance audit committee effectiveness and have identified five key factors: It is important to recognize that there is no one-size-fits-all model for audit committees and therefore enhancing their effectiveness will be more dependent on adoption of good practices rather than further prescriptive legislation or additional regulatory scrutiny. Often if the board is not directly dealing with a matter or there isn’t another appropriate committee, by default whatever is left over falls to the audit committee to oversee: for example, cyber security and other technology related matters, as well as risk management beyond financial risk.Īudit committee responsibilities vary widely across jurisdictions, sectors and between companies. However, globally audit committee responsibilities are widening beyond their core financial reporting oversight responsibilities, putting them under increasing pressure both in terms of time and expertise to oversee the major risks on their agendas in addition to fulfilling their core mandates. IFAC strongly supports efforts to strengthen and clarify the roles of boards and audit committees in exercising oversight of the statutory audit and financial reporting processes led by management, including addressing perceptions that audit committees are not sufficiently independent of management, or that there is insufficient communication from the audit committee to shareholders.Įffective audit committees are a critical part of delivering trust and confidence in reporting and risk management. But this delegation does not absolve the board of its obligations and accountability to shareholders and other stakeholders.
These responsibilities are often delegated by the board to its audit committee.
The board has ultimate responsibility for the integrity and accuracy of the company’s financial reporting, which includes ensuring implementation of internal controls over financial reporting, adoption of appropriate accounting policies, and appointment and oversight of independent external auditors. Organizations need to be proactive in driving improvements in their governance beyond adherence only to minimum requirements. The board in conjunction with management is responsible for setting the tone at the top, shaping the culture of the organization, and setting strategic direction. Ultimately, corporate failures and the resulting impacts on financial statements are consequences of poor governance and decisions.Įffective governance is underpinned by purpose, vision, values and ethics, that are reflected in the behaviors and actions of the board and management team and cascaded throughout the organization. An audit is designed to enhance confidence in financial reporting, but it does not relieve management or those charged with governance of their responsibilities.
The result is increased debate globally on audit and governance regulatory reform.Ĭompanies do not fail because of poor quality audits. Corporate failures and scandals across countries, including the recent collapses of Carillion, Patisserie Valerie and London Capital & Finance in the UK, failings in South Africa’s state-owned entities Transnet, Eskom, and South African Airways, and the 1MDB scandal in Malaysia to name a few, have all focused political and regulatory attention on the audit profession and also exposed serious corporate governance failings.
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