Short of a crisis, the issues on an audit committee’s radar don’t change dramatically from year to year but sometimes small shifts tell a big story. When KPMG International conducted the 2015 Global Audit Survey, it was little surprise to see four key concerns carried over from last year: economic and political uncertainty, regulation and the impact of public policy initiatives, operational risk, and cybersecurity.
“While the audit committees are confident when it comes to financial reporting oversight and audit quality; new regulations, rising business complexities, increasing risk volatility and growing investor scrutiny are stretching audit committee agendas,” said Mritunjay Kapur, Head of Risk Consulting, KPMG in India.
Of the 1500 Audit committee members that participated in this global survey, three out of four said the time required to carry out their responsibilities has increased significantly (24 per cent) or moderately (51 per cent). Half of the respondents said the audit committee might not have the time or expertise to oversee risk management.
Key questions asked in the survey, to better understand the challenges faced by audit committee members, are as below:
Which of the following risks pose the greatest challenges for your company? Audit committee members around the world, including 67 per cent from India, identified uncertainty and volatility (economic, regulatory and political) as a risk posing the greatest challenge for companies. Government regulation/compliance and cybersecurity were also viewed as major challenges. Clearly, a slowing global economy, the flare up of geopolitical hotspots, and the proliferation of major cyber breaches have intensified the spotlight on these issues.
How much time does your audit committee devote to different matters? Indian audit committee members indicated they spend significantly more time on accounting judgment and estimates, oversight of their risk process and adequacy of internal controls around operational risks. Additionally, nearly 40 per cent of the Indian respondents indicated that they spend more time on reviewing risks related to the pace of technology development (e.g. emerging technologies, mobile, social media, data analytics, cloud computing, etc.). Further, 30 per cent of these respondents said their time was largely devoted to cybersecurity – including data privacy and the protection of intellectual property.
Which of the aspects of the finance organisation’s work would you like the audit committee to hear about? As compliance requirements pertaining to risk management increase along with the stakeholders’ scrutiny of this process, audit committees both at India and global levels, expressed their intent to learn more from the management on the extent of financial risk management, capital allocation, effectiveness of mergers and acquisitions and efficiency of treasury operations. In addition, nearly 43 per cent of the survey respondents in India say the committee is not effective in overseeing CFO-succession planning.
Are you satisfied that your audit committee has the time and expertise to oversee major risks in addition to its core responsibilities? Only 40 per cent of audit committee members in India comfortably agree that they have the time and expertise to oversee major risks compared to 52 per cent of global respondents. This is because the audit committee, currently, has too much on its plate, especially after the Companies Act , there is an increased focus on monitoring auditors’ independence and performance, approval of related-party transactions, scrutiny of inter-corporate loans and investments, valuation of undertaking/assets, etc.
How satisfied is the audit committee with the company’s internal audit function? In India, only 52 per cent respondents are entirely satisfied with the value that the internal audit function adds. The respondents expect internal audit to be a crucial voice on risk and control matters – from financial reporting and compliance issues to key operational and technology risks facing the business.
What would improve your audit committee’s effectiveness? All respondents concur that a deeper understanding of the business, greater diversity of thinking, more open dialogue and IT expertise would help improve the committee’s effectiveness. About 33 per cent of all respondents also agreed that adding an electronic board portal shall help improve the audit committee/board’s effectiveness and efficiency.
The survey insights can be used by audit committees to refine their focus, benchmark responsibilities and practices and strengthen its oversight. KPMG International’s 2015 Global Audit Committee Survey can be downloaded here.
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