AUDIT COMMITTEE DISCLOSURES
R&C: Could you provide an overview of the main trends and developments affecting audit committees in recent times? How has their role evolved and have you seen a general improvement in quality and oversight?
Chitty: Audit committee disclosures provide important information for stakeholders about the audit committee’s activities and exercise of its responsibilities. The audit committee has a vital role in corporate governance, including providing oversight to the financial reporting process led on a day to day basis by the chief financial officer (CFO), appointing and maintaining close contact with the external auditor, and receiving reports from and providing guidance and support to the internal auditor. The role of many committees has evolved into overseeing risk management as well as financial and ‘traditional’ audit affairs. Legislation and regulation, as well as codes of practice, may specify the minimum disclosures expected of an audit committee, whether in the annual report or other media issued by the company. However, in the interests of transparency and good investor and stakeholder relations, the disclosures may go beyond this minimum. The 2014 European Union (EU) Audit Directive extended the list of functions assigned to the audit committee, as follows. First, inform the administrative or supervisory body of the audited entity of the outcome of the statutory audit and explain its contribution to the integrity of the financial statements. Second, monitor the financial reporting process and submit recommendations. Third, monitor the effectiveness of the internal quality control and risk management system. Fourth, monitor the process of the audit of statutory or consolidated financial statements, mainly the findings and conclusions. Fifth, review and monitor the independence of the statutory auditor. Finally, be responsible for the procedure for the selection of the statutory auditor or audit firm. The Directive has been transposed in law in the Member States of the EU and it ought to influence disclosures by audit committees, as the committee has more responsibilities to comment upon. In practice, disclosures will be influenced by national requirements, as well as convention, in the Member State. Studies are beginning to show how committees are reporting on their extended responsibilities.
Apr-Jun 2019 Issue