In a recent edition of Risk and Compliance magazine, Crowe’s international experts explore the evolving role of audit committee disclosures and the impact of these changes on organisations. To accompany this publication, Crowe Ireland looks at the evolving role of audit committees within an Irish context.
Shane McQuillan (Consulting Partner), Roseanna O’Hanlon (Internal Audit Partner) and Alan Davidson (Associate Director, Risk Consulting) discuss Crowe’s recent global research in this area, and its valuable lessons for state and not-for-profit organisations in Ireland.
Question: How has the role of audit committees evolved in recent times, and have you seen a general improvement in quality and oversight?
Answer: Recent well-publicised issues at the National Children’s Hospital and the Football Association of Ireland have once again highlighted the crucial importance of effective governance structures and processes at audit committee and board levels. In our work across the public and not-for-profit sectors, we are seeing a growing awareness that the role of the audit committee needs to keep evolving to meet stakeholders’ expectations on the quality of its oversight function, particularly through increased emphasis on identifying, managing and monitoring key business risks. Equally, though, our experience is that boards and audit committees benefit from independent external advice to help them shape their future strategies for ensuring effective and efficient governance.
We sense real and sustained momentum towards enhanced recognition of the role which audit committees play in supporting good governance across their organisations. Most recently, we have:
Question: What has been the impact of the recent legal and regulatory developments in this area?
Answer: The launch of the Charities Regulator’s Governance Code in late 2018 signals a step-change in best practice for not-for-profit bodies, and audit committees play an important role in this regard. The regulator has permitted charities a ‘learning year’ to allow them to adjust to the new requirements of the code, and we are receiving numerous requests from clients for advice on ensuring they are appropriately prepared for the advent of the code’s enforcement regime.
In the public-sector arena, we see clients continue to work towards compliance with guidance on governance issued by the Department of Public Expenditure and Reform in recent years. In our view, the most significant impact arising from this has been a renewed focus on identification, assessment, management and monitoring of risk. Working with bodies across the public sector has shown us that executive teams can struggle to implement robust frameworks for risk management. More now than ever, it is incumbent on audit committees to exercise high-quality oversight of risk matters.
Question: How might enhanced transparency around corporate governance help underscore audit committee improvements?
Answer: Effective corporate governance is not just driven by frameworks, but also powered by people. Time and again, we observe how corporate culture – ‘what people do when no-one is watching’ – can make or break effective governance at organisational level. When organisations embed healthy corporate values of openness, professionalism, integrity and transparency, we believe this is a very positive influence on business conduct, and can contributes to good governance in all areas of operations.
Experience teaches us that greater visibility and appreciation of these issues makes audit committees more effective in fulfilling their responsibilities. We also believe there are significant benefits for audit committees in enhancing transparency with respect to their own activities, in how they plan their work, exercise an appropriate challenge function, and evaluate their performance.
Question: What are the benefits of increased transparency in relation to the activity of the audit committee?
Answer: We view transparent audit committee reporting, based on a robust programme of activity and a sound committee charter, as a central element of good governance in both the charity and government sectors. As not-for-profit organisations move towards full adoption of the Charities Statement of Recommended Practice (SORP), trustees will face more rigorous reporting requirements relating to governance and risk management. A demonstrably effective audit committee can make a significant contribution to informing trustees’ assessments in this regard. Similarly, within the public sector, we see high-quality audit committee activity and reporting as fundamental building blocks for clients’ annual reporting on governance, in relation to financial and non-financial matters.
Question: How do you expect audit committee activity to evolve in the years ahead, as even greater transparency and accountability become the norm?
Answer: Audit committees and boards can take a range of important steps to help ensure their organisations are meeting the requirements for good governance within their sectors. Principally, in the time ahead, we expect that audit committees will increasingly seek to demonstrate the strength of their activity in overseeing management of business risks, and to engage more closely and constructively with key risk owners to support and challenge their stewardship roles.
We also anticipate that audit committees will seek greater assurance on the performance of their internal audit functions, through both formal periodic assessments and development of plans for ongoing quality improvement. In addition, we see a trend for audit committees and boards to seek independent views on the effectiveness of their operations, rather than rely solely on self-assessment of their activity. So, a lot achieved, but more potential for progress in the time ahead.
For more information on how Crowe can help your audit committee or board perform more effectively, contact:
Roseanna O’Hanlon, Internal Audit Partner
Shane McQuillan, Consulting Partner
Alan Davidson, Associate Director, Risk Consulting