Recession-related risks, such as access to capital, liquidity and cash management will head audit committees' agendas during 2008.

KPMG's global head of audit, Henry Keizer, said boards and audit committees will 'need to focus on management's plans to address risks associated with an economic slowdown.'

Keizer made the comments following a survey of delegates attending an audit committee conference hosted by the firm, where attendees also noted the quality of risk intelligence, as well as the tone and culture of senior management as areas of concern.

According to survey results, 44% of conference attendees said that their company’s processes to identify significant business risks need improvement. Eighteen percent said the risk reports that management provides to the audit committee are not meaningful or useful, Smartpros.com reported.

Sitting on a panel which looked at the priority areas of 2008, Keizer said that audit committee members needed to understand debt situations which included debt maturities, access to capital markets and the impact the recession would have on a company's supply and distribution channels.

'Audit committees are taking a hard look at risk management processes, with a particular focus on the quality of risk inventories and assessments, as well as the usefulness of management’s risk reports,' said director of KPMG’s Audit Committee Institute, Edward Smith.

'The one-two punch of the sub-prime lending crisis and the economic downturn has put tremendous pressure on companies, and as a result, audit committees are paying close attention to the culture of the organization and its incentive structure

'The pressure to maintain performance and meet expectations during an economic downturn, carries with it some increased risks, such as the risk of earnings management, and overly aggressive budget-cutting. Audit committees also need to understand the behavior and risks that incentive compensation plans encourage,' said Smith.

Further reading:

Investors blast credit crunch knowledge gap

Citigroup investor challenges audit committee