In some areas, South Africa leads the world. Although a relatively small sample from South Africa was surveyed, a number of correlations were found between the South African and global samples.
Risk, economic and regulatory uncertainty, financial reporting issues, liquidity and access to capital, and IT risk are top concerns for audit committees as their companies navigate a tenuous economic recovery and changing regulatory landscapes. In its annual KPMG survey, 300-plus audit committee members identified their priorities and shared their views on a host of financial reporting issues and oversight challenges.
In relation to risk, less than half of South African respondents believed that the full board had primary responsibility for a company’s risk, whereas the aggregated sample of 75% (including global and local responses) indicated that it is the responsibility of the board in accounting for risk oversight.
“There is a reason for that, however,” said Barrie Jack, Chair of the Audit Committee Forum (ACF) Working Group. “If we add up the respondents in South Africa who said that risk responsibility lies with the risk committee, audit committee and the board, we reach a figure of 78%, which doesn’t differ much from the total tally. If we look at where the emphasis lies from the point of view of strategic risks, the international view is that responsibility lies with the board, but South Africa concedes that while overall responsibility lies with the board, greater emphasis is placed on the risk and audit committees.”
“Risk responsibility is often delegated in the South African context by the board to committee level,” adds Thingle Pather, Director at KPMG and National Co-ordinator of the ACF. “While the board takes overall responsibility, the day-to-day vigilance, risk policy development, implementation and so on are delegated. The operational features, in other words, are obviously not the function of a board, although the board is meant to ensure proper risk-management information is fed to it.”
South Africa faces a peculiar dilemma around the roles of audit and risk committees as there are stand-alone functions allocated to them while combined functions for them could be allocated in the form of conjoined audit and risk committees. There is also a perception that the risk function should just be managed at board level. There is a further dimension where the audit committee takes responsibility for risk, but are not risk committees per se in terms of their objective or composition.
The survey also revealed a very strong correlation between South Africa and the global samples in terms of audit committee composition with respect to the number of members that are considered independent and those with pure financial expertise. “This shows that we are pretty much in step with global norms,” observes Jack.
The survey also found that the number of meetings convened by the global sample took place more frequently via teleconferencing than was the case in South Africa. In terms of the number of hours per month spent on committee and board matters (including travel, preparation, etc.), over 76% both locally and globally reported a figure of over eight hours.
“From an interpretation point of view, this is quite secular,” says Pather, “since most board meetings are convened only four times annually.”
In relation to the recovery of the global economy, audit committees indicated that half their boards and senior management teams felt there would be a return to business as normal for their respective companies between two and four years, while the other half felt that they would not return to business as usual and will only operate in a new business environment after the next four years. The finding has implications for the operations of audit and risk committees, especially in the South African context.
South African respondents also expressed the view that the three most impactful things undertaken by their companies with respect to cost reduction included internal controls, leadership pipelines and employee talent and training. Fraud risk cost reduction measures were not a concern for 31% of South African respondents. On the other hand 34% of global responses were not concerned with fraud risk, with employee talent and training and internal controls emerging as the next most important factors.
“This is an interesting finding,” says Pather. “One would expect that in the global economies, that were heavily affected, there would be a greater concern about fraud risk cost-reduction. This has not been borne out by the KPMG survey.”
There was also some satisfaction over the fact that management has a timely and accurate forecasting methodology for the company’s income and cash-flow statements. Both globally and in SA, two-thirds of the samples expressed satisfaction with this area of audit committee activity and one third reported being somewhat satisfied.
“The findings reflect well on good governance. While there is an emerging focus on strong self-governance rather than simple compliance with regulation and legislation, there is still some work to be done. We can be pleased with the progress being made in the South African alignment with global good practice, nonetheless,” says Jack.
Access the full survey.