Audit committees around the world said economic and political uncertainty and volatility, regulatory compliance, and operational risk continue to pose the greatest challenges for companies in the year ahead, according to KPMG’s 2015 Global Audit Committee Survey covering 1,500 audit committee members in 36 countries. For the second straight year, respondents also said it is increasingly difficult, given the audit committee’s time and expertise, to oversee major risks in addition to financial reporting.
Three out of four respondents surveyed said the time required to carry out their audit committee responsibilities has increased significantly (24 percent) or moderately (51 percent), and half said the job continues to grow more difficult given the committee’s time and expertise. Many audit committee members say they have at least 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.
“The resounding message is that the audit committee can’t do it all,” said Tim Copnell, Chairman of KPMG’s UK Audit Committee Institute. “Overseeing financial reporting and audit is a major undertaking in itself, and the risk environment is clearly straining many audit committee agendas today.”
Asked which specific issues will require more attention in 2015, survey respondents cited cyber security and the pace of technology change, risk management and controls over operational risk, and regulatory compliance.
“A positive development is that more boards are reassessing or reallocating risk oversight responsibilities to better balance the workload,” said Copnell. More than one-third of boards have recently reallocated risk oversight duties among the full board and its committees (up from 25 percent last year), and 32 percent said they may consider doing so in the near future. “A lighter risk management agenda for the audit committee can translate into more time for quality discussions and a deeper understanding of the business,” he added.
While audit committees continue to express confidence in their oversight of the company’s financial reporting and audit, the KPMG survey highlights a number of ongoing challenges and concerns globally:
The company’s readiness to respond to loss of critical infrastructure—financial systems, telecommunications networks, transportation, energy/power—may require more attention.
External auditors could better support the audit committee by sharing industry-specific insights and views on the quality of the company’s financial management team.
Assessing their overall effectiveness, most audit committees said they would benefit from a better understanding of the 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.
UK Audit Committees believe greater ‘diversity of thinking’ is needed
Generally the responses of UK audit committee members were in line with their global peers. However, when asked what would most improve the effectiveness of their audit committees, 58 percent of UK respondents said ‘diversity of thinking’ – ie audit committee members that think, solve problems and interpret and negotiate the world around us in different ways. This was considerably higher than the global average (38 percent) and the views of US respondents (29 percent).
According to KPMG, diversity of thinking inherently brings in fresh information, independence and innovation. Therefore, if present, it means a board is collectively more able to consider issues in a rounded, holistic way and offer a broader attention to detail.
In a separate follow-up piece of research, the UK Audit Committee Institute explored the diversity of thinking issue further by asking 165 UK audit committee members to categorise their own style of thinking in the hope of identifying the diversity of thinking missing around the audit committee table – and by extension, around the board room table. The study found that, in some respects, UK audit committee members already exhibit diversity of thinking styles with respondents showing a roughly equal propensity for being idea initiators and idea generators; diplomatic and forthright; and task-orientated and people-orientated. But in other respects the findings were startling. The study shows that individuals who are naturally risk adventurous (only 19 percent), detailed thinkers (17 percent), autonomous (10 percent) and ruled by their hearts (11 percent) are in very short supply.
Commenting on these findings, Tim Copnell, said: “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.”
KPMG’s 2015 Global Audit Committee Survey is available here.
Margot Cowhig, KPMG Corporate Communications
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.