Risk Management Watch: Risk Top Concern for Audit Committees
The credit crisis has triggered a broad and growing emphasis on risk. In fact, a recent study conducted by KPMG’s Audit Committee Institute (ACI) and the National Association of Corporate Directors shows that risk management is now the biggest concern for audit committees. Moreover, although most audit committee members at public companies say their audit committee is more effective now than before Sarbanes-Oxley was enacted in 2002, many acknowledge there is still room for improvement - particularly in the area of risk management.
The scope of responsibilities and strategic importance of internal audit departments are expanding as well. Audit professionals are increasingly expected to move beyond compliance and financial reporting responsibilities to focus on business and operational risk as the credit crunch shows no sign of letting up according to the yearly annual Audit Committee Member Survey conducted by KPMG’s Audit Committee Institute (ACI). Oversight of information technology (IT) risk, in particular, has emerged as a high priority. Amid the change, internal audit has become a “valuable rung on the leadership ladder,” according to CFO.com.
Moreover, the American Institute of Certified Public Accountants (AICPA) contends that the volume and complexity of financial and non-financial information will continue to expand along with the need for accountants and auditors to interpret and analyze data and participate in the decision-making process. That said, hiring qualified professionals remains the most critical concern for U.S. firms.
As a result, accounting jobs are opening up, according to executive search firm, A.E. Feldman. Firms are adding staff to address the increased emphasis on risk management as well as mounting resource demands. Current opportunities include international tax jobs, tax manager jobs, business valuation jobs and transaction services jobs. Need also exists for candidates with expertise in hedge fund accounting.
Risk has surpassed accounting as the top priority of audit committees, according to a survey conducted by the Audit Committee Institute (ACI) and the National Association of Corporate Directors. The survey, which polled 281 audit committee members, reveals that only 28% of respondents said they were “very satisfied” that audit committees understand management processes well enough to identify and assess significant business risks facing the company. In addition, only 21% said they are “very satisfied” with the risk reports they receive from management. And, while nine out of ten respondents say their audit committee is more effective now than before the passage of Sarbanes-Oxley many acknowledge risk management is one particular area in which there is room for improvement.
“The current business and regulatory environment is sharpening the audit committee’s focus on risk management,” said Henry R. Keizer, Vice Chair - Audit, KPMG LLP, and Global Head of Audit, KPMG International. “The near ‘perfect storm’ of the credit crunch, economic slowdown and market volatility has placed risk management high on the audit committee agenda, where it is likely to stay for some time.”
Risk Management Top Concern
Nearly all of the audit committee members polled in the joint study conducted by KPMG’s Audit Committee Institute (ACI) and the National Association of Corporate Directors ranked risk management as their top priority. Accounting judgments and estimates dropped to second on the list.
Coming in third was information technology (IT) risk and governance - the area in which respondents felt least confident. One quarter of respondents said they were not clear about the areas of IT risk the audit committee is responsible to oversee and 26% said they were not satisfied with management’s reports on IT risks.
“Audit committees are more confident in their ‘traditional’ areas of financial reporting oversight,” said Edward F. Smith, Executive Director of ACI. “But there’s much less comfort in the area of risk management. They clearly want a better understanding of the company’s risks and its risk management processes.”
The survey highlights two key challenges for audit committees:
- Defining the audit committee’s risk oversight responsibilities (50% of respondents expressed concern they have too much responsibility for risk oversight)
- Coordinating risk oversight activities with other board committees to better monitor potential risks (74% said communication and coordination of risk oversight activities among the audit committee, board, and other committees could be improved)
IA in the Spotlight
In the wake of the corporate scandals that erupted over the past decade, internal audit has found itself in the corporate spotlight, reports CFO.com. That’s thanks in part to Sarbanes-Oxley and its heightened financial-reporting mandates. The report states that today internal audit executives are immersed in all aspects of a business, and have frequent exposure to the board. That said, the report also contends that Chief Auditors are now considered senior finance executives and professionals who move into the lead audit role may be in a position to gain the experience and exposure to help shape the remainder of their careers.
An increasing number of companies are expecting their IA teams to deliver more in terms of value creation from their risk and control based activity, not just value preservation, according to KPMG International. Mike Nolan, Partner in the KPMG International’s Advisory practice and Global Head of Internal Audit Services, says, “Audit committees increasingly look to IA to help them expand their oversight of organizational risks, governance, financial reporting and control frameworks.” Nolan adds now is the time to be ramping up IA efforts with more sophisticated capability in this area. “Having the capability to deal with today’s business risks requires a significant level of investment in skilled resources, methods, training, career paths and technical infrastructure,” he says.
Now, as firms step up to meet these challenges, A.E. Feldman, says auditor jobs exist for candidates who can evaluate and participate in the improvement of clients’ risk management, controls and governance processes through the use of strategic and technical expertise.
A.E. Feldman’s accounting division is constantly researching industry trends and developments. To learn more about these issues or inquire about existing and future job opportunities in international tax, the lines of communication are open. Contact A.E. Feldman’s President, Mitch Feldman, and the firm’s cutting edge accounting recruiting team here.
