The Debate – Additional training for audit committees

Education, education, education

By Timothy Copnell

The first consultation document produced by the Professional Oversight Body for Accountancy (POBA) seeks to increase public and investor confidence in financial reporting by ensuring accountants, auditors and audit committee members receive the training necessary to fulfil their respective roles effectively – a laudable aim. Of the three, it is possibly the ‘training’ of audit committee members that is the least developed.

Induction programmes covering the audit committee’s terms of reference, the expected time commitment, an overview of the company’s business, and advice on identifying the main business and financial dynamics and risks, should now be the norm for new audit committee members. But what about ongoing development?

Audit committees cannot be expected to provide meaningful protection for shareholders unless its members are in a position to challenge management and draw sufficient attention to dubious practices – even in apparently successful companies.

In an age of ‘smoke and mirrors’ where both financial transactions and accounting standards are becoming increasingly elaborate, it is no longer possible for audit committee members to operate effectively with only a passing knowledge of finance and regulation. They must have expertise, or access to expertise, that goes beyond familiarity with financial statements. They must understand the principles that underpin the preparation of financial statements, why critical accounting policies are chosen, how they are applied. This means they must keep up to date – what was relevant a decade ago will not suffice in an IFRS world.

In my experience, audit committee members are hungry for knowledge. But whatever form the training takes, it is important it is tailored for audit committee members rather than, say, CFOs. After all, the needs of each individual are different depending on their background, skills and experience. There is no single ‘right’ way for an audit committee member to fulfil their development needs, nor a shortage of development opportunities. The trick is identifying the right ones.

  • Timothy Copnell is director of the Audit Committee Institute.

Qualification is a red herring
By Betty Thayer

The Higgs report raised several flags regarding the practical ways in which boards were being selected, trained and evaluated. There is a buzz of backroom debate as to whether a ‘standard’ should be introduced for a non-executive, similar to the chartered accountant qualification. Although the government this week intimated that caps on director liability might be introduced, the increasing and punitive litigation against non-executive directors is causing many to seek out mitigating education and experience.

A new non-executive expects to be assigned to one or more of assorted board committees. I suspect it is not uncommon for the chairman’s question to be ‘would you like to be on this committee?’ rather than ‘are you qualified?’ By being a non-executive, one is assumed to have a basic level of experience and qualification that can propel you into a variety of roles.

The dissimilar experience of any group of non-executives implies that a training regime would be difficult to design. But I believe most audit committee members would welcome a framework for education. Indeed, many of the non-executives I know are pursuing additional education to minimise the risk associated with these roles. Demand for short, content-rich seminars is increasing. We are also developing curricula with the IoD.

What, however, are the unintended consequences of introducing a training regime?

If to serve on an audit committee one must have some minimum financial qualification, the power of diversity on boards will be diminished, as boards will take the path of least resistance and appoint only those equipped with a formal qualification.

Audit is also about assessing how risk is measured and managed. Mandatory training will push the role more towards ‘auditor’ than to risk, but the majority of companies who fail neglect to manage strategic risk rather than get the audit wrong.

I believe directors who take their roles seriously will themselves seek out education opportunities across a variety of topics.

  • Betty Thayer is CEO of exec-appointments and, an online publisher of jobs and non-exec content.

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