Newsletter | Volume 1

When things go wrong in a company, it is often due to lack of adherence, monitoring and independent assurance of right governance processes in the organisation. One of the primary reasons when management, the chairman or the audit committee member is forced to say; 'we were not aware' is often due to the undermining of trust in the financial accounts, culture and the GRC activities to obtain confidence in the performance. Management tools like the 'whistle-blower' function, 'compliance' and 'tone-of-the-top' are valuable however in this article we focus on the role and responsibility of the audit committee to avoid a corporate failure

When corporate mismanagement occurs, and governance goes bad, unhappy investors after reviewing the wreckage, will in future yell; "What the #%¤§ was the audit committee doing?"
The Copenhagen Compliance Audit Committee Stewardship Framework [1] addresses the new European legislation on the EU regulation, added requirements that are unique to the new role and responsibilities of audit committees, changes in auditor oversight, the issues and functions of the audit committee that will change drastically.

External auditors will be more aggressive, sceptical, and raise concerns
Besides the primary responsibility of how the audit committee is doing its job on the oversight of the audit process and reviewing the disclosures from the external auditors, the new responsibilities will be:

The current audit committee reporting requirements provide information about the role of the audit committee, in future, the disclosures must also describe how the audit committee executes its responsibilities.
Future governance disclosures from audit committees will focus on how to achieve improved performance, and accomplish the goal of more accountability and transparency
The degree of adherence to the governance components e.g. accountability and transparency; includes the disclosure of communication between external auditors and the audit committee.
The new AC rules will pressure the external auditors to be more aggressive, sceptical, and to raise more concerns to the audit committee
Provide inspiration to the audit committees on how to update their charter to reflect the revised legislation on their role, responsibility and authority to monitor auditor independence and the governance within the organisation.
Define the critical monitoring issues and difficulties in performing the audit oversight, potential disagreements with management, complaints on accounting issues that auditors have disclosed, and that these are communicated to the audit committee "in a timely manner"

Much of the intelligence is known too late.
Another transparency issue could be the disclosures regarding the nature or substance of the communications between the auditor and the audit committee. The stakeholder activists may hold the auditors responsible for bringing more matters where investors have a greater interest in knowing and what those conversations were about.

Much of the updates on the communications between the audit firms and the audit committees are quite nicely defined in the latest 2016 version of the PCAOB's Auditing Standard16. https://pcaobus.org/Rulemaking/Docket040/Release_2015_002_Reorganization.pdf
Reviews from the recommendations from the two audit committee conferences; http://www.copenhagencompliance.com/2016/auditcommitteeanno/dk/index.htm And http://www.copenhagencompliance.com/2016/auditcommitteeanno/index.htm At the Audit Committee events we will supply participants with a number of assessment tools including the Copenhagen Compliance Stewardship Framework.

[1] The Components of the Copenhagen Compliance Audit Committee Stewardship Framework include; Annual Internal Audit Plan/Work, Review Audited Financial Statements, Approvals, Compliance, Code Of Conduct/ Ethics, Control Weaknesses, Cyber-Security, Enter¬prise Risk Management, Financial Reporting, Governance, IT-Security, Internal Audit Responsibilities, Internal Audit's Chief Audit Executive, Internal Controls, Monitoring, Policy Issues, Consultancy Activities, Significant Weaknesses, Updates, Whistle-Blower Program, Select & Recommend External Auditor, Annual External Audit Plan/Budget.