- Service: Audit
- Type: Business and industry issue
- Date: 2011/05/06
Growing numbers of countries are adopting International Financial Reporting Standards (IFRS). The benefits of the new standards include enhanced comparability and improved transparency of financial reporting.
When considering their 2011 agendas, Audit Committees should...
- Understand the significant risks facing the company
‘Risk’ is the number one Audit Committee priority. Lessons from the financial crisis should be considered along with questions like, ‘does the Audit Committee have a good sense of the company’s risk culture beyond the boardroom and senior management level?’
- Look beyond the numbers
Narrative reporting earnings releases and analyst briefings contain important information, which often does not come from the financial reporting system, is not audited and is not subject to internal controls. Are these risks clearly and simply stated? Are there many of them and, if so, are they really the principal risks?
- Continue to monitor fair value issues
These issues, together with impairments, loss contingencies, pension funding shortfalls and going concern challenges, will continue to be a major area of focus for Audit Committees.
- Make sure Internal Audit is properly focused
Internal Audit should provide added assurance to the Audit Committee regarding the adequacy of the company’s risk management process. It is important to help ensure Internal Audit is adequately resourced and has refined its scope for changes to the company’s risk profile.
- Prepare for the potential impact of key public policy initiatives
For example, the new Companies Act introduces fundamental changes to South African company law and corporate actions on compliance, risk and governance processes. The Consumer Protection Act has also recently come into effect.
- Review the anti-bribery and corruption processes
Audit Committees should ensure that management have implemented adequate procedures to prevent bribery and that particular attention is paid to risky countries/operations and some of the less well understood areas, such as facilitation payments, entertaining costs, etc.
- Evaluate the Audit Committee’s role in major transactions
With global M&A activity set to recover, Audit Committees are re-evaluating their role in major transactions. Responsibility generally lies with the full Board, but Audit Committees can be asked to play a larger role both pre- and post-transactions.
- Understand the company’s significant tax risks
South African tax legislation has undergone many changes over the years. The Audit Committee should be aware of changes to the tax regime and the potential impact on both the company and key personnel.
- Ensure the system of internal control is working as intended
Audit Committees should ensure appropriate internal control procedures are in place for all significant risks including operational risk, compliance risk and risks arising in the wider financial arena – such as indirect tax, treasury, etc. Particular attention should be paid to low probability, high impact risks.
- Understand the impact of performance-based remuneration on behaviour
Particular attention should be paid when results are ‘at the margin’. When was the last time the Audit Committee met the Chairman of the remuneration committee? Is there cross-membership between the two committees?