The workload of the audit committee has experienced a steady rise over the years – particularly for listed companies or those in the regulated sector.
This comes amid a growing realisation by firms that accountability is one of the keys to success.
Among publicly listed companies, the discussion about good governance began with the publication of the Cadbury Report in the UK in 1992, the first governance code internationally. In many countries, specific codes and regulations for governance followed. Today, nearly all countries have a governance code, but these are mainly for publicly listed companies.
Regulatory agencies worldwide and in the Middle East acknowledge that risk management and compliance are integral features of a successful business model and have turned their full attentions toward raising the standards across the financial services industry for corporate governance and risk management systems.
The value of bringing seasoned perspectives and new insights into the corporate governance dialogue cannot be overstated, particularly today, with the pace of technological change, globalisation and regulatory pressures shaping the way businesses think about risk, strategy, talent and long-term performance. A key insight can change the course of a discussion – if not a major business decision – entirely.
The workload of the audit committee has risen steadily over the years, particularly for listed companies or those in the regulated sector, and prioritising issues is a battle given the constantly changing developments in global risk, regulation and political environments.
Through KPMG’s own regular thought leadership, global and regional surveys, issues-based round tables and panel discussions bringing together audit committee chairs and directors, we have tried to highlight the key challenges facing audit committees, matters relating to audit committee effectiveness and other priorities.
Previously conducted surveys are helpful for benchmarking current practices, identifying gaps and emerging risks and sparking fresh conversations about how audit committees and boards are strengthening their oversight. The primary aim is to raise the standards of governance in the UAE.
There is much to be done. About a year ago, KPMG conducted a survey covering 35 countries and more than 1,000 audit committee members. One of the questions was: “What areas would you favour additional reporting/communication from the audit committee to investors to provide more insight into the work of the audit committee?”
A series of suggestions were offered, including the role in risk governance, oversight of the external auditor and audit committee effectiveness.
An alarming 40 per cent of the respondents chose “none of the above”.
What this tells us is that a significant number of audit committee members have yet to grasp the messages of the investor community who are generally pushing for greater transparency and communication from those charged with stewardship.
In an overwhelming majority of cases, however, the reports are less forthcoming. These reports are missed opportunities to demonstrate to shareholders the significant and stewardship role which the job entails. One cannot generalise, but it would be a fair assumption that this passive style indicates a less than proactive audit committee.
This will change as companies constantly compare their reporting to that of their peers and as pressures from regulators and standard- setters increase.
There are matters beyond reporting, including broader governance matters and those connected with the quality of controls, processes and people, the alignment of the company’s ethical and compliance programmes with new vulnerabilities to fraud and misconduct keeping on top of technology advances.
The industry needs to understand that good governance helps to create economic value and in the case of family-run businesses, assists the emotional well-being of the family and others with a stake in the company. It demonstrates that the owners are taking responsibility for their employees and other stakeholders, and helps to ensure the long-term survival of the family enterprise.
Effective governance calls for a board of directors and a management team where each member understands their role.
A clear vision and related business policies, along with formalised interactions between governance bodies and key stakeholders, is also key. Ultimately, it offers the opportunity for open dialogue among key stakeholders, including employees to discuss and tackle organisational concerns.
Ian Gomes is the head of advisory at KPMG Lower Gulf