The increasing volatility and complexity of the global business and risk environment --conflict in the Middle East and slowing growth in China and emerging markets, volatility in commodity prices and currencies, interest rate uncertainty, and more--raises an important question for every global company audit committee: How is this global volatility and uncertainty affecting the committee's agenda?
Based on what we're hearing from audit committee members of global companies, we offer the following observations:
What's staying the same on global audit committee agendas? Job number one for every audit committee is financial reporting integrity, so the committee's core responsibility remains the oversight of financial reporting and internal controls over financial reporting, as well as directing the external and internal auditors--which is critical to audit quality. That's a big undertaking for every audit committee, but it is particularly challenging for audit committees of complex, global organizations.
What's changing? The globally connected world in which companies operate--with complex legal and compliance environments, integrated supply chains, cyber security risks, and unprecedented volatility and geopolitical risks--requires audit committees to know more about that world, and to make sure their companies are "built to operate" in today's dynamic business environment. That's an increasingly difficult challenge, which the audit committee shares with the board. We see global audit committees reassessing whether they have enough time and the right expertise--thinking about which board committees are best suited to oversee which risks (and reallocating oversight responsibilities as appropriate), leveraging nontraditional resources to gain a deeper understanding of certain risks, and engaging in more global travel to see things firsthand and connect with the people on the ground.
What are the key challenges facing global audit committees today? We would highlight four:
* Culture: Critical to the success of every global company is establishing a non-negotiable set of global values--about compliance, safety, and how we treat people. Keys to meeting this cultural challenge are tone at the top of the foreign operation, control and accountability built into the organizational structure, upfront communication, and proper incentives and rewards.
* Talent in the Finance Organization: Quality financial reporting starts with the CFO, but requires a...