5 Key Takeaways from KPMG’s “2015 Global Audit Committee Survey”

Feb 12th 2015
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To help identify the key challenges and concerns relating to corporate audits today, accounting giant KPMG surveyed about 1,500 audit committee members in 35 different countries. This annual survey focused on a variety of timely issues, including audit committee workload and agenda, risk and information quality, oversight of auditors, and overall effectiveness.

Notably, the 2015 Global Audit Committee Survey, which was administered by the KPMG Audit Committee Institute, identified broad international trends and provided detailed data on audit committee challenges and concerns around the world.

Here are five key takeaways from the 87-page report.

1. Concerns haven’t changed. According to the results of the survey, the top four risks audit committees said pose the greatest challenges for their company have carried over from the prior year: economic and political uncertainty and volatility (52 percent), regulation and the impact of public policy initiatives (47 percent), operational risk (30 percent), and cybersecurity (16 percent). Clearly, a struggling economy, geopolitical flare-ups, and major cyberbreaches have intensified the spotlight on these four issues. But many audit committees are also noting a growing trend of agenda overload.

“Audit committees often have responsibility for a number of significant business risks beyond financial reporting and audit – from cybersecurity and compliance to financial risk and the company’s risk process,” Dennis T. Whalen, partner in charge and executive director of the KPMG Audit Committee Institute, told AccountingWEB. “As the risk environment becomes more complex and uncertain – and it clearly has over the past few years – the time and skills required to oversee the various risks on the audit committee’s plate increase as well.”

Whalen explained why three of those risks are top of mind for corporate audit committees in 2015. He also offered insight on three additional challenges mentioned by survey respondents.

Economic and political uncertainty and volatility: “The geopolitical landscape and global economy have become more volatile and unpredictable. Plummeting oil prices and currency fluctuations, conflicts in the Ukraine and the Middle East, the slowdown in emerging markets – all of these issues make it harder for businesses to manage risk and execute on strategy. Companies and boards are facing a world where many of the old operating assumptions no longer apply, and the range of what-if scenarios needs to be much wider.”

Regulation and the impact of public policy initiatives: “The regulatory environment is always a challenge for companies – it’s a cost of doing business. But the scope and complexity of regulatory issues in the United States and globally have heightened concerns about public policy risk. In the United States, ongoing initiatives, such as Dodd-Frank and healthcare reform, and uncertainty around corporate taxes, energy policy, immigration reform, and other public policy debates are big question marks. Globally, we’re seeing heightened government involvement in markets – particularly in China and Russia – so it’s more important than ever to understand how government policies and attitudes may impact the company’s operations, strategy, and risk profile.”

Cybersecurity: “Audit committees in the United States pointed to cybersecurity as the top issue that will require significantly more attention in 2015. With cybersecurity breaches in the headlines almost every day, it’s quickly becoming clear to audit committees that cyber risk is a critical business issue and not just a technology fix. In addition to threats to corporate information systems and intellectual property, cyber risk means compliance risks, the potential for lawsuits, reputational damage, and loss of customers. In the United States, nearly half of our survey respondents said the audit committee has responsibility for cyber risk today, but I think you’ll see that number go down as cyber gets elevated to a board level.”

Legal/regulatory compliance: “Making sure that the company’s ethics and compliance programs are keeping up with globalization, technology, and new business models will require vigilance. The risk of fraud and corruption tends to go up when you move quickly to capitalize on opportunities in new markets, leverage new technologies and data, and engage with more vendors and third parties across longer supply chains. Factor-in the Foreign Corrupt Practices Act and the UK Bribery Act, the US Securities and Exchange Commission’s whistleblower program, and the sheer volume and scope of new regulations and it’s pretty clear why compliance is a top challenge. Twitter, YouTube, and Facebook have effectively put every company in a fishbowl, so the company’s culture and values, commitment to integrity and legal compliance, and brand reputation are on display all the time.”

Growth and innovation: “The new normal of low growth will continue to test companies in 2015 – particularly with European economies struggling to avoid deep recession, slowing growth in Asia, and a long list of geopolitical hotspots. Growth and innovation may be particularly challenging for the current generation of business leaders who went through the financial crisis and are inclined to be more risk-averse because of that experience. The challenge for the board is to help the company not only avoid missteps, but also take smart risks to grow, innovate, and stay competitive.”

Talent management and development: “Strategy, risk management, and corporate performance – which are the top priorities for most companies – all hinge on attracting and retaining the right talent. Does the company’s talent pipeline support its strategy? What will the company’s talent needs be three to five years from now in a global business landscape that will continue to change? CFO succession and the bench strength of the finance team are particular areas of concern for audit committees.”

2. Job has become more challenging. By and large, the audit committee members surveyed continue to express confidence in their oversight of the company’s financial reporting and audit quality. But about three out of four – 74 percent, to be exact – said the time required to carry out their responsibilities has increased significantly. Furthermore, about half of those surveyed (51 percent) said the job continues to grow more difficult each passing year, given the committee’s time and expertise restraints.

3. More boards are reallocating risk oversight responsibilities. In what KPMG termed a positive development, more corporate boards are reallocating risk oversight responsibilities among the full board and its committees, which the report says bodes well for audit committees. Thirty-five percent said they had reallocated or rebalanced risk oversight responsibilities among full board and board committees, while 21 percent indicated they had created new committees for this purpose. Only 32 percent said that no changes had been made – but future changes may be contemplated.

“A lighter agenda for the audit committee can translate into more time for quality discussions and a deeper understanding of the business,” Whalen said.

Audit committees also continue to express confidence in their oversight of financial reporting and audit quality, which is “job No. 1,” he added.

4. Areas to improve. Survey respondents also cite ongoing opportunities for improvement in a number of critical areas, ranging from CFO succession planning and getting more insight from external auditors (e.g., information on the strengths and weaknesses of the finance organization) to improving the quality of risk information and better leveraging internal audit as a vital resource for the audit committee.

5. Three ways to be more effective. When asked what would best improve overall effectiveness, 43 percent of the respondents said a better understanding of the business would be helpful; 38 percent indicated a greater diversity of thinking, background, perspectives, and experiences; and 34 percent advocated more “white space” time on the agenda for open dialogue.

Staff writer Jason Bramwell contributed to this article.

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