The audit committee in the age of risk: an Ernst & Young survey of audit committee chairs and members at companies around the world offers unexpected revelations around risk management, audit committee composition, continuing education needs and time commitments to address today's key challenges.

• Author: Lloyd, Karole
• Position: AUDIT

Audit committees have always played a critical role in the oversight of corporations. However, since the onset of Sarbanes-Oxley several years ago, audit committee activities have become not only intensely visible but highly scrutinized. And while Sarbanes-Oxley originated in the U.S., the corporate governance principles it spawned have become part of a much broader landscape. More than ever, the work of the audit committee matters in the global arena.

In no small part, audit committees help create the right environment for confident investing around the world. They do this by playing a substantial and growing role in matters of financial responsibility and accountability to shareholders, regulators and the business and government communities at large.

Whether scrutinizing financial statements or exploring the possible risk from a cross-border transaction, the work of audit committees is vital to the future success of the companies they serve, particularly as the competition for global market share intensifies.

The Buck Stops Here

As in the pre-Sarbanes-Oxley business environment, the audit committee provides board oversight to ensure the quality and integrity of the company's audit and related accounting and reporting practices. The committee's role has been, and continues to be, key in areas of financial controls, as well as legal and regulatory compliance. But now, the role also encompasses the broad issue of risk management and its potential implications on the company's financial health.

High on its list of oversight duties is the examination of risk issues related to the company's merger and acquisition (M & A) activities. These may involve complex matters that companies face in the integration of multiple technology standards, overlapping workforces, cultural diversity and regulatory issues that must be dealt with across state and international jurisdictions.

In late 2006, Ernst & Young conducted a survey of audit committee chairs and members at 176 companies around the world--across 11 industry sectors and 25 countries, representing more than 30 stock exchanges--in order to shed light on the nature of current and leading practices. The survey uncovered some unexpected revelations around risk management, audit committee composition, continuing education needs and time commitments to address challenges adequately.

Risky Business

Survey respondents reported placing an increasing priority on risk issues, with regulation, M & A/divestitures, information technology (IT) and market dynamics leading the list of top concerns. Despite the boards' and audit committees' attention to risk, more than half of the survey respondents...