Political and economic insecurity set to dog audit committees in 2015

THE TWIN PERILS of economic and political uncertainty fused with volatility, regulatory compliance, and operational risk continue to cause major angst among global audit committees, the latest KPMG 2015 Global Audit Committee survey reveals.

The survey of 1,500 audit committee members across 36 countries discovered that for the second successive year, respondents reported that they found it “increasingly difficult” to oversee major risks in addition to financial reporting.

Three out of four respondents said the time required to carry out their audit committee responsibilities had risen significantly (24%) or moderately (51%), while half said the role was increasingly difficult given the committee’s time and expertise.

A majority of audit committee members said they had some responsibility for significant aspects of risk oversight-in addition to financial reporting-such as cyber security and technology, global compliance, and operational risks, or the company’s risk processes generally.

Tim Copnell, chairman of KPMG’s UK Audit Committee Institute, said: “The resounding message is that the audit committee can’t do it all. Overseeing financial reporting and audit is a major undertaking in itself, and the risk environment is clearly straining many audit committee agendas today.”

Several concerns

While audit committees report continuing confidence in their oversight of financial reporting and audit, several concerns were unearthed by the survey. Key among them are the quality of risk information – particularly on cyber security and technology risk, while CFO succession planning was deemed poor, with many audit committees ranking themselves lowest in this area. 

Attention should also be applied to a company’s readiness to respond to the loss of critical infrastructure financial systems, telecommunications networks, transportation and power, audit committtees said.

When asked to assess their overall effectiveness, a majority of audit committees said they would benefit from a better understanding of their company’s strategy and risk landscape; more “white space” time on the agenda for open dialogue; greater diversity of thinking, perspectives, and experiences; and technology expertise on the committee.

While the responses of the UK audit committee members broadly echoed their global peers some 58% of British respondents said ‘diversity of thinking’ would be a welcome boon, much higher than the global average (38%) and the just 29% for US respondents.

To extrapolate further on the diversity element, a separate follow-up piece of research was conducted with 165 UK audit committee members. It found that their thinking styles were roughly split between being “idea initiators and idea generators”.

But around one in five (19%) saw themselves as naturally risk adventurous with even less (17%) detailed thinkers, one in ten autonomous and 11% claimed to be “ruled by their hearts”.

Copnell added: “This separate UK study shows that if diverse boards are the way forward – which I believe they are – then more work needs to be done to identify the way board members actually think and operate. Gender, ethnicity and other ‘observable’ elements of diversity are hugely important, but if UK plc is really serious about having truly diverse boards then diversity of thinking must be right up there on the board’s agenda.

“Simply being aware of the issue is the first step, but ultimately boards should be looking towards assessment tools, including personality profiling when looking at the composition of the board and candidates for new board positions. Our survey shows that few boards currently do this.”

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