ACI - Quaterly 25 · 2020-06-19 · more broadly, ACI engages with directors and business leaders...

Quarterly 25

Audit Committee InstituteSponsored by KPMG

Risk and volatility – Insights Annual Audit Committee Issues Conference

Director effectiveness – Success by dint of hard work

The future of audit – Global Boardroom Insights

CFO succession – The better part of value

Ethics and integrity – Blind spots and red flags

Financial reporting news

Other news and insights

Audit Committee Institute Sponsored by KPMG

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About the Audit Committee Institute

The Audit Committee Institute (ACI) champions good corporate governance to help drive long-term corporate value and enhance investor confidence. Focusing on the audit committee and supporting the director community more broadly, ACI engages with directors and business leaders to help articulate their challenges and promote continuous improvement. Sponsored by KPMG, ACI delivers actionable thought leadership – on risk and strategy, technology, compliance, financial reporting and audit quality – all through a board lens.


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For more information visit our website:

www.auditcommitteeinstitute.be

Contact us:

Olivier MacqTel.: + 32 2 708 36 86

Wim VandecruysTel.: + 32 11 28 66 31

Audit Committee Institute Bourgetlaan - Avenue du Bourget 40

B-1130 Brussel - Bruxelles

E-mail: [email protected]

Contents

Risk and volatility – Insights Annual Audit Committee Issues Conference 6

Director effectiveness – Success by dint of hard work 8

The future of audit – Global Boardroom Insights 10

CFO succession – The better part of value 20

Ethics and integrity – Blind spots and red flags 22

Financial reporting news 26

Other news and insights 27

Audit Committee Institute in Belgium

@ACI_BE


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Welcome to the twenty-fifth edition of the Audit Committee Institute Quarterly, a publication designed to help keep

directors and audit committee members abreast of regulatory matters, risk, financial reporting, audit quality

and other changes in the corporate governance arena.

Welcome


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We kick-off this issue of the Audit Committee Institute Quarterly with an overview of the key insights from the ACI 2015 Annual Audit Committee Issues Conference held in Miami earlier this year, shedding light on the challenges and priorities shaping audit committee and board agendas in the current high risk and volatile business environment. Audit committee effectiveness will remain a work-in-progress in the years to come as audit committees will continue to be put to the test to keep their risk oversight calibrated.

Recognizing the ever more extended and demanding role of non-executive directors, we zoom in on director effectiveness. Because despite the array of governance reforms that have systematically introduced tighter rules, board and director effectiveness can only be achieved by dint of hard work.

The insights from six interviews from around the world on the future of audit in our Global Boardroom Insights series is included next. Our interviewees point to the essential drivers of audit quality and contemplate mandatory auditor rotation and audit tendering.

With CFO succession labelled as one of the areas audit committees want to be deeper involved in our 2015 Global Audit Committee Survey, we focus on the role of the audit committee in the CFO succession planning process.

This is followed by an article on the blind spots and red flags of ethics and integrity in companies and the considerations for audit committees in this respect.

We finish this edition with a financial reporting update and other timely news and insights relevant to your role.

We trust this publication serves its intended purpose of briefing you on some of the important developments affecting your role as audit committee member or director.

If you require further information, please contact us at [email protected] with any comments, or suggestions of topics you would like to see receive attention or visit our website at www.auditcommitteeinstitute.be.

We hope you continue to enjoy the benefits of ACI membership.

Olivier Macq Chairman ACI Belgium Wim Vandecruys Director ACI Belgium


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Audit committee effectiveness: a work-in-progress

Audit committee effectiveness, noted one director, is “always a work-in-progress. Given the increasing complexity of business and risk, staying focused and devoting quality discussion time to the issues that matter most requires discipline.”

At its core, effective oversight hinges on understanding the business – “not only the financial reporting aspects, but the company’s strategy and its risks – and that doesn’t happen in audit committee meetings alone.” Spending time outside of the boardroom with key members of management – the CFO, CEO, General Counsel; line of business leaders – internal and external auditors; employees and regulators; and others “can provide valuable perspectives on the business, its leadership and upcoming talent, and the culture of the organization.”

“You may spot problems from the numbers, or through the audit or the whistle-blower hotline, but constant communication and interaction with people throughout the company’s ecosystem are also important; you’ll always pick up signals from those people that will help you focus on what matters.”

Discussions also highlighted other factors driving audit committee effectiveness, including:

Making the most of the committee’s time together “I spend a lot of time before the meeting doing whatever research I need to do to make sure we’re focusing on the right things. It helps us hit the ground running.”

Ensuring quality conversations “As chair, my job is to keep the discussion focused and directed in a way that allows the important issues to be surfaced and addressed thoroughly. Management will tend to default to their presentation, but the real insights come from just having a conversation: ‘ Tell us about your business and how you’re managing the risks.’”

Getting quality information “There’s a big difference between data and information. The data needs to be there, but it should be in context and supported by a narrative that helps you understand the relevance. We still get a huge board book, but we also have a three-page executive summary that gets to the point.”


The dialogue at ACIs 2015 Annual Audit Committee Issues Conference (February 2-3, in Miami) shed valuable light on the challenges and priorities shaping audit committee and board agendas – from refining risk oversight and sharpening disclosures to strengthening cyber security. As highlighted in these excerpts from the conference, boards and audit committees globally and in Belgium alike will be put to the test as they help their companies think ahead, calibrate strategy, and keep a fresh perspective on risk in the months ahead.

Read the full conference report and watch ACI’s“2-Minute Insight” video at kpmg.com/ACIC


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Carefully monitoring the audit committee’s workload “An overloaded audit committee agenda can detract from the committee’s focus and efficiency. Continually ask whether the agenda is appropriate. Does cyber security risk belong in the audit committee or the full board?”

Considering the committee’s composition and dynamics “To have meaningful discussions, you need people on the committee who can ask the right questions, and the diversity of thinking to look at the same issue from different angles. Performance evaluations for the committee and individual directors – if they’re taken seriously – can be invaluable in identifying gaps in expertise or underperforming directors.”

As one director noted, the audit committee tends to be a “natural nexus of information about the business. We often spot trends that the board should be aware of. So the more effective we are, the better informed the board will be.”

And other thoughts from the conference ...

Cyber security – “There aren’t ‘solutions’ to cyber risk, but it can be managed with the right resources and mindset.” The key is to understand “what information matters most, how vulnerable it is, and the threat factors – who would want to get to it, and why.”

Expanded audit committee reporting – “If there’s anywhere that more disclosure would actually be beneficial, it’s around all the work that the audit committee does. The challenge will be to avoid boilerplate disclosures and provide meaningful information about how the audit committee works and maintains its effectiveness.”

Sharpening financial disclosures – “Better organization and streamlining gives everyone a clearer view of the company – including the audit committee. It’s like cleaning out the garage after 15 years. Improving disclosures is a discussion every audit committee should have with management, regardless of the outcome.”

Global dexterity – “One of the biggest pitfalls is to assume that what works in one country will work everywhere else. Companies that get global expansion right are very focused on local consumer behaviours and preferences.” Q25


Director effectiveness – Success by dint of hard work


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The effectiveness of non-executive directors depends on individual initiative and hard work, not the ever more prescriptive set of rules and codes. The current spate of regulator imposed sanctions in the financial sector and, more widely, missed earnings projections, has caused the spotlight to fall once again on corporate governance, and in particular, on the role of the non-executive director.

The array of governance reforms of the last decade have systematically extended the role of the non-executive director. Many might argue that the jury is still out as to how effective such reforms have been. Nevertheless, in the light of the attention currently directed at non-executives, it is opportune that their role effectiveness and the expectations placed upon them be appraised.

So what is the role of the non-executive director and how can their effectiveness be improved? Non-executive directors are quite simply those directors without executive responsibilities – though recent regulatory reforms have started to blur the lines somewhat. They are normally appointed to the board primarily for their contribution to the development of the company’s strategy and to provide valuable expertise not otherwise available to management. However, non-executive directors have a control or monitoring function too – and it is this part of their role that is perceived to be in need of attention if confidence in the capital markets is to be restored.

Since the governance failures at the beginning of the millennium, some governance commentators have called for tighter ‘rules’ on independence; a restriction on the

number of directorships held by a single individual (which we now have in the financial sector); investor participation in the selection and appointment of non-executives; and mandated meetings with significant shareholders. There may be merit in each of these suggestions, but the temptation to introduce a system of rigid rules should be resisted. Effective non-executive directors cannot be conjured out of thin air simply by ticking the right boxes. In Belgium, and many other countries around the world, there have for a long time been specific rules to determine the independence of non-executive directors but some have doubts on whether these have had any real impact on the effectiveness of boards.

Clearly, dynamic leadership is important but this must be tempered by proper control. If non-executive directors are to provide meaningful protection for investors, they must be in a position to challenge the executive management and draw sufficient attention to questionable practices – even in apparently successful companies. To do this, non-executives must be diligent, truly independent and knowledgeable. But what does this mean in practice?

IndependenceWhile independence is above all concerned with the integrity of the individual in question, it is not unreasonable to suggest that financial ties, whether personal, business, political or philanthropic, threaten the independence of non-executive directors and therefore their motivation to actively challenge management. But, rather than simply meeting some checklist of independence criteria, it is imperative that non-executive directors are able in practice, not just in theory, to express views to the board that are different to those of the chief executive officer and be confident that, provided this is done in a considered way, they will not suffer.

Even those boards that comprise vigorously independent non-executive directors will prove ineffective unless such directors have both access to, and an understanding of, all the relevant information. Where financial transactions, accounting standards, and incentive arrangements are becoming increasingly complex, it is no longer possible for non-executive directors to fully operate effectively by relying on what is put before them. They must seek ways to address the risks associated with information asymmetry head on, ask tough questions and make sure they fully understand the answers.

Skills and experienceThe skills and experience of board members are important and there is a strong business case that boards perform better when they include the people of sufficient stature and independence from a range of perspectives and backgrounds. But this is not just about gender and observable characteristics of diversity – important though they are – it is also about the richness of the board as a whole, the combined contribution of a group of people with different skills and perspectives to offer different experiences, backgrounds and life styles and who together are more able to consider issues in a rounded, holistic way and offer an attention to detail that might not be present on non-inclusive boards.

Audit committee members, for example, must have expertise, or access to expertise that goes beyond mere familiarity with financial statements. They must be able to understand the rules and, more importantly, the principles that underpin the preparation of financial statements. They must be prepared to invest the time necessary to understand why critical accounting policies are chosen, how they are applied, and satisfy themselves that the end result fairly reflects their understanding.

Similarly, remuneration committee members must set themselves high standards and be seen to live up to them. They should ensure that they fully understand the contribution of each director, the market place for talent, and how remuneration is linked to the sustained success of the business rather than simply thinking about pay in the context of recruitment and retention.

DilligenceOf course, the level of diligence required in an increasingly demanding corporate environment may mean non-executive directors need to devote a greater amount of time to their role and this may mean both higher compensation than at present and accepting fewer non-executive appointments.

If non-executives are to contribute fully, then boards need to devise procedures to encourage the selection and retention of individuals who are dedicated and willing to devote a substantial commitment of time and energy to their responsibilities. Such procedures might include the development of a written statement addressing the skills, experience, diligence, and time commitment the board expects – all based on the future strategy of the company, not the status quo.

The chair of any board should ensure that all board members (not just the non-executive directors) continually update their skills and the knowledge and familiarity with the company required to fulfil their role both on the board and on board committees. The company should provide the necessary resources for developing and updating its directors’ knowledge and capabilities, but individuals also need to use their initiative and take whatever steps necessary to stay up to speed on the key issues. This might include formal professional development, but also perusing social media, ‘walking the floor’ of the organisation and meetings with key shareholders.

In conclusion, it is to be hoped that the ever increasing pressure to extend, regulate and codify the role of the non-executive director does not give rise to a new round of ‘box ticking’ and a reduced pool of talent willing to take on the role. If any change is necessary, it must address the behavioural issues as the effectiveness of any non-executive director depends in a very large measure upon each individual’s initiative and exertion, and cannot be achieved except by dint of hard work. Q25

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10 Audit Committee Institute Sponsored by KPMG

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The future of auditGlobal Boardroom Insights

It’s telling that so many private companies around the world have their financial statements audited – even when they’re not required to do so. An audit provides lenders, investors, and the capital markets with critical added assurance on the integrity of the company’s financial statements and related controls. As we’ve heard more than one observer say, “if the financial statement audit didn’t exist today, someone would invent it.” That said, audits – and auditing – are, in some ways, on the cusp of dramatic change, if not reinvention.

In this edition of Global Boardroom Insights, we explore the current state of the audit – where audit quality stands today, drivers and indicators of audit quality, and various stakeholders’ expectations of auditors – and what the near-and-long term may hold for auditing. Is audit quality continually improving? What are the key drivers and indicators? Should the auditor’s report be expanded beyond the “pass/fail” audit opinion? What innovations can companies expect to see in auditing in the next 3-5 years?


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DRIVERS OF AUDIT QUALITY

Professional skepticism and training – univocally put forward as the pinnacle drivers of audit quality: audit teams and partners bringing the skills, independent discussion and challenge to the company.

Robust focus on critical areas of risk – risk-oriented audit plans and approaches that are articulated and addressed rigorously.

Open and transparent communication with the audit committee – auditors and audit committees communicating through open and frank dialogue where sensitive or difficult matters can be aired, and where expectations can be established and reinforced.

Linkage between internal and external audit – fundamental for the audit committee in seeking to ensure that key areas of risk – financial or otherwise – are subject to assurance.

Value beyond the statutory audit scope – bringing wider perspectives to the table: benchmarking industry and other relevant information, leveraging audit work to help companies with the strategic risks they face and offering perspectives on financial information outside the statutory annual report.

Innovation – all consistently point to the use of big data and analytics – allowing testing of larger populations versus small samples, supporting better identification of high risk audit areas, and bringing value to companies through the benchmarking opportunities it offers. Auditors, however, should not compromise on genuinely understanding of the business and the financials when computers are doing a progressively larger part of the work.

AUDIT FIRM ROTATION

Views differ widely: while those supportive of mandatory audit firm rotation point to the benefit of bringing a fresh set of eyes to the audit, those opposed express concern that mandatory rotation is not only costly and disruptive; it may not deliver tangible benefits – and could actually hamper audit quality, particularly if auditors “lose a step” in the first year.

INTERVIEW INSIGHTS AT A GLANCE

Views were consistent: Sparked by corporate failures and the financial crisis, and driven by regulatory reforms, more deeply-engaged oversight by the audit committee, and continual improvements in the audit process and profession, audit quality has continued to improve over the past two decades.


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Kees Storm Anheuser-Busch InBev (Belgium)

“Financial information provided to the market needs to be reliable – and this goes beyond the statutory accounts. It applies to all information reporting to the market, and any quality audit should factor in procedures on such financial information.”

Kees Storm is chairman of the board of Anheuser-Busch InBev, where he chaired the audit committee until 2012. He also serves as vice chairmanat Unilever and chairman of the supervisory board of PON Holdings, and is a member of the board and audit committee of Baxter International.

Jakob Stausholm Statoil (Norway)

“Data analytical methods – making effective use of big data – will change audit methodology radically and sooner than one might think. Opportunities to innovate the audit profession have never been greater.”

Jakob Stausholm is a member of the board of Statoil ASA (where he chairs the audit committee), and is Chief Strategy, Finance and Transformation Officer at Maersk. Previously, Jakob worked as group CFO for global facility provider ISS, and for Shell in various senior finance positions.

Michele HooperPPG Industries (U.S.)

“Audit quality is rooted in the quality of the engagement team – the quality of the lead engagement partner, the sufficiency of the firm’s resources, how auditors are trained, their level of expertise, their ability to be sceptical and objective and to push back on management when needed.”

Michele Hooper is president and CEO of The Directors’ Council, and serves on the boards of PPG Industries (chair, audit committee) and UnitedHealth Group (chair, nominating and governance). She previously served on the boards (and chaired the audit committees) of AstraZeneca PLC, Target Corporation, and Warner Music Group. Michele serves on the board of the Center for Audit Quality, and is a member of the Economic Club of Chicago, the Commercial Club, Executive Leadership Council, the Chicago Network, and the Committee of 200.

Prof. Herbert Onye Orji Nigerian Stock Exchange (Nigeria)

“I see auditors making more and more use of industry, competitor and other relevant information to sense check the numbers they are auditing in a particular company.”

Professor Herbert Onye Orji, OON, serves as board/council member of the Nigerian Stock Exchange – where he also chairs the Audit & Risk Management Committee – and is the chairman of the National Broadcasting Commission. He is also the chief adviser to the executive governor of Abia State. Previously, he was vice-chairman of the Industrial Training Fund, chairman of the Nigerian Economic Summit’s committee on federal government budgeting strategy and process and chairman / CEO of Summa Guaranty & Trust Company Plc (Member of the Nigerian Stock Exchange).

James P. Liddy KPMG (U.S.)

“Audit quality is grounded in the experience and commitment of the engagement team. Professional skepticism, constructive challenge and transparent communication are also necessary ingredients of a quality audit effort.”

Jim Liddy is Vice-Chair of Audit in the KPMG’s U.S. member firms. In addition, Jim serves as the Regional Head of Audit, Americas region and Chair of the Americas Audit Steering Committee. Jim has spent more than 30 years serving KPMG clients and has held various leadership roles throughout his career.

Carlos Sá Banco do Brasil / Marisa (Brazil)

“With a trend towards using more IT and data-analytics, auditors have to guard that they don’t lose grip on their knowledge and understanding of the business and the strategic risks.”

Carlos Sá is a member of the audit committee of Marisa (a Brazilian retail company) and Mitsubishi do Brasil, and a member of the fiscal council of Banco do Brasil. He also served as a member of the fiscal council of Marfrig (a food processing business) and as director of internal audit, risk & compliance services at KPMG in Brazil.


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MICHELE HOOPER:I do believe that audit quality has improved, but that really started right after Sarbanes-Oxley. Financial reporting stakeholders – audit committees, external and internal auditors, company management – are all more aware of and focused on their responsibilities. The process is clearly much stronger and the underlying quality of what is in those reports is much better. I think about audit quality not only in terms of the overall process – getting our financial reporting done, and with a high degree of accuracy – but whether we’re getting better at articulating and addressing areas of financial risk.

Today, there’s a much better discussion and articulation of critical areas of risk in the scope of both the internal and external auditors’ work. The linkage between internal and external auditors is stronger than ever, and that helps link the company’s major areas of risk with the financial statements. I think the financial crisis helped to strengthen those links as well, because in a lot of people’s minds that crisis was risk-driven.

KEES STORM:Yes, I believe so, mainly because of intensified public scrutiny towards auditors and audit committees and because of lessons learned from the financial crisis. Both of these factors made external auditors and audit committees shift gears to be more proactive in their focus on strengthening audit quality. I also believe the added value delivered by external audit – beyond the statutory audit report – has increased over the years as more and more companies are demanding this from their external auditors.

HERBERT ONYE ORJI:Nigeria has definitely seen some major improvements in audit quality over the last decade. This happened

in two phases in my view. The first was between 2006 and 2010, when the financial crisis gave all of us a rude wakeup call as to the importance of audit quality. Generally speaking, the amount of professional scepticism of the auditors had leapfrogged since – with auditors challenging management more robustly on areas of significant judgement and estimates, certainly in the financial services industry. Corporate failures placed a lot of focus on the role of the auditors and audit quality, and auditors have stepped up their game accordingly.

The second wave of improvement in audit quality came about when the Federal Executive Council in Nigeria introduced IFRS as the national reporting framework, in view of the country’s ambitions of becoming one of the fastest growing economies by 2020. The Nigerian Accounting Standards Board (NASB) was put in charge of this process and directed Significant Public Interest Entities to adopt IFRS by 2012, with some exceptions for smaller companies. The IFRS migration track provided an opportunity for many organisations to “clean” out their books. Having the leading knowledge in the application of IFRS, auditors assisted in ensuring that high quality conversions where done, thus adding to audit quality.

JAKOB STAUSHOLM:Yes, I believe external audit quality has increased – certainly since the big corporate failures around the turn of the century, although finance departments and external auditors did not immediately know on what legs to stand. So it took time to develop good practice, but it paid off – and some of those good practices were even transposed in regulation later on.

One example where you can specifically see that audit quality has gone up is in the deliverables that we in the audit committee get from the external auditors. The other thing I see as a contributor to audit quality over the last decade is the practice of audit partner rotation – and I applaud mandatory audit firm rotation as well, although only with sufficiently long intervals.

New regulation certainly has increased audit quality to some extent, but I also think that a lot is about behaviour – both of the audit committee and the auditors. The audit committee has to make sure that there is a clear expectation for a high quality audit. If the audit committee is only concerned about getting some signatures on paper, the full value of the audit will never be unlocked. Regulation is a good foundation, but it is up to the auditor and the audit committee to really make it work through mutual respect, carefully listening and dialogue.

Has audit quality improved since the financial crisis – and if so, what do you attribute that to?


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JIM LIDDY:Over the last decade, I think KPMG member firm’s focus on audit quality – our emphasis on objectivity, independence and professional skepticism – has improved significantly. However, the financial crisis did teach auditors that a quality financial statement audit cannot be expected to address a flawed business model or less-than-robust risk management processes. For example, many companies had a “velocity business model,” with their business model and compensation schemes grounded in originating or acquiring assets, packaging them for distribution, often in complex structures and derivatives, and getting them off the balance sheet as quickly as possible while retaining nominal amounts of residual risks. While financial markets were receptive to these structuring and distribution activities, everything was fine. But the moment the market lost confidence, access to capital disappeared and it all came crashing down. Before the crisis, people generally assumed resilience of funding sources. Now people understand that this is not always the case and not all assets or structures are created equal. That said, I think our focus on audit quality has never been greater. One area that I am particularly pleased with is the increasing dialogue with audit committees regarding engagement planning and with assessment efforts, as well as discussions regarding significant judgments and estimates that underlie the fair presentation of a company’s financial statements.

CARLOS SA:In Brazil, after the introduction of the 2009 Corporate Governance Good Practices (a voluntary corporate governance code equivalent) it was demonstrated to the capital market that well prepared board members and audit committees should interact more with the external auditors. Note that audit committees are generally not mandatory in Brazil, but most companies have established an audit committee on a voluntary basis – to help the board in overseeing risk management systems, internal and external audit, etc. These self-regulatory initiatives have strengthened audit quality as part of an ongoing process. However, there is no doubt that stronger regulatory oversight – from the PCAOB and CVM, which is the Brazilian securities and exchange commission – were also drivers of audit quality.

That said, dealing with and preventing fraud as audit committees and auditors in Brazil remains a huge challenge because of the complexity of the fraud constructions and agreements in which they are cemented. Really understanding the strategy and business processes of the company and effectively teaming up with the board and audit committee is the best way for auditors to help mitigate fraud risk, to a certain extent. However, bringing it to zero is impossible in my view.

MICHELE HOOPER: First, I think most audit committees recognize that they have an increased responsibility for oversight of the financial reporting process and the external auditors, and they’re taking that responsibility seriously. They’re more engaged in their work and in their interactions with auditors. Audit committee agendas have expanded, and we are having deeper conversations with the external auditors and internal auditors and the CFO – and our conversations are very risk-oriented. It wasn’t always that way. Today we have a better handle on what the company’s critical areas of risk are and where the auditor needs to be particularly focused. Audit quality is rooted in the quality of the engagement team – the quality of the lead engagement partner, the sufficiency of the firm’s resources, how auditors are trained, their level of expertise, their ability to be skeptical and objective and to push back on management when needed.

KEES STORM:I believe a quality audit is one that ensures the integrity of the financial statements. Financial information provided to the market needs to be reliable – and this goes beyond the statutory accounts. It applies to all financial information reported to the market, and any quality audit should factor in procedures on such financial information in my view. From an internal perspective, management and the board have to be confident in financial information being used to measure performance and make decisions – not just in Belgium and the UK, but also in China and Uzbekistan. It is important that internal and external auditors team up effectively to make this work. In my early days, having internal and external audit to leverage each other’s work was far from easy. I see improvements over the last few years but I still feel that auditors are wary of relying on internal audit to the fullest extent.

What are the most important drivers of external audit quality?


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HERBERT ONYE ORJI:Auditors no longer focus purely on the historical information of the entity they audit, but also widen their perspective to the environment in which the entity operates. I see auditors making more and more use of industry, competitor and other relevant information to sense-check the numbers they are auditing in a particular company.

I came across an interesting example in the manufacturing industry where auditors drew a correlation between the depreciation rates used by the company against similar entities in the same industry, manufacturers in different industries, as well as the rate of degradation of machinery and various other external factors. Such factors included the effects of manufacturing assets located in tropical or coastal areas as compared to those in dry locations and the effects of unstable electricity supply on machinery versus consistent high quality electricity supply. In the specific case at hand, a higher charge to depreciation was justified because there was inconsistent supply of electricity to the manufacturing plant. For me, this is what audit quality is about – the auditor being able to think laterally and ensuring that the financial statements that they are auditing are indeed in tune with the reality of the entity and its external environment.

JAKOB STAUSHOLM:Having a healthy set of financials is what it is all about. You simply cannot run a business without having a first class financial reporting process in place. That is why auditors are there.

It’s crucial for the auditor to excel in its interaction with the company and specifically the finance function. Auditors have a unique opportunity to help the finance function to see things from a different perspective. Executing your “standard” job as an auditor is one thing, but it is equally important to add value beyond this. The advantage of Big Four audit firms is that they see many more companies and have a much wider view on what good practice is. There is so much that the finance function can learn from auditors. To a certain extent, this also applies when interacting with the audit committee.

I firmly believe that the audit partner should demonstrate full commitment and professional skepticism to critically digest all the information obtained from the audit and to

get into the right stimulating and challenging dialogue with the audit committee and the board. An effective and competent audit partner is able to unleash the full value of an audit through in-depth discussions, challenge and really ensuring the right issues are on the table and understood to make sure sensible conclusions are eventually reached.

JIM LIDDY:As a global network of member firms, we’re continually focusing on factors that we know drive audit quality – strong leadership and tone at the top; engagement teams’ knowledge, experience, and workload; and our system of audit quality control. As the business and auditing environments change, all of these elements need to continually evolve to keep pace. Beyond the “baseline” of delivering a quality audit – which any company that’s being audited by a Big 4 firm expects – it’s important to remember that member firms also provide value by delivering insight and perspective across a wide array of financial, regulatory, operational, and technological topics.

CARLOS SA:External auditors have to avoid being “flexible” towards management; professional skepticism is key. Other important drivers of audit quality are good communications with audit committee, a clear understanding of what must be done, transparency in the relationship and commitment to do a first class job.

To make sure auditors live up to these expectations, audit committees must have an in-depth planning meeting with the external audit partner to discuss the company’s key audit risks, the main points of sensitivity, and past problems, and to ensure that all the information needed is qualitative and received timely.

Auditor independence is fundamental as well. Personally, I’m particularly worried with the strong focus of auditors to sell additional non-audit services. The amount of consulting proposals we get from our external auditors is huge – and we regularly feel that they could affect auditor independence, although they insist that they will not. We have come to the point that we’re considering installing a company-specific policy that prohibits any non-audit services provided by out external auditors.


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MICHELE HOOPER:The use of big data and analytics is impacting every aspect of our lives, and I would expect auditing to follow suit. I think using technology to tell us more about our companies is clearly within the auditor’s wheelhouse. Instead of doing audit testing by sampling, you should be able to use big data to test 100 percent of the company’s transactions – and I think a lot of firms are quickly going in that direction. They may not be there yet, but I expect within the next audit cycle or so that you’ll begin to see the rollout of more broad-based data testing. Even testing 100 percent of a company’s transactions is not going to catch every problem, but it will certainly help identify more of the potential problem areas.

KEES STORM:It is technically not an audit innovation, but I would like to share the following as a best practice for audit committees: In one of the companies when I chaired the audit committee, we asked for satisfaction reporting on the external auditor in each country from the local finance responsibles – not primarily to assess external audit teams locally but more the other way around. By looking at any negative ratings, we knew where action was needed by the audit committee. Experience taught us that these negative ratings pointed to the countries where there were disagreements.

In some cases, our conclusion was that the finance responsible did not a good job and we took actions accordingly. Anyway, you can only go that far if you are fully confident about your auditor’s professional judgment and skepticism.

HERBERT ONYE ORJI:I get the impression that auditors are progressively covering a lot more work with a lot less effort, using appropriate information technology to churn and mine relevant data.

You now find that they cover entire populations or much larger samples and are able to execute analytical work using large volumes of data to uncover risks, inconsistencies and errors in the information they are auditing. The use of technology will further help in driving external auditor quality up in the years to come.

JAKOB STAUSHOLM:I am highly interested in what is happening in the business world around IT and big data right now. Data analytics can do things that we could have never imagined in the past. The audit profession is a profession I have enormous respect for – audit strategies and approaches have innovated and matured for centuries.

For example, sample testing methods once were an innovation to gain comfort with big populations. I think data analytical methods – making effective use of big data – will change audit methodology radically and sooner than one might think. In my view, the opportunities to innovate the audit profession have never been greater.

JIM LIDDY:Advances in technology and the massive proliferation of available information have created a new landscape for financial reporting. With investors now having access to a seemingly unlimited breadth and depth of information, the need has never been greater for the audit process to evolve by providing deeper and more relevant insights about an organization’s financial condition and performance – while maintaining and continually improving audit quality. Consider the potential for more effective audits done by auditors with more dynamic tools and skill sets.

Today, in many cases auditors perform procedures over a relatively small sample of transactions – as few as 30 or 40 – and extrapolate conclusions across a much broader set of data. Using high powered analytics, auditors have the capacity to examine 100 percent of a client’s transactions. We are be able to sort, filter and analyze tens of thousands or millions of transactions to identify anomalies, making it easier to focus in on areas of potential concern and drill down on those items of higher risk.

This will enable auditors more than ever before to help assess risks and identify trends through the audit process. With smart data, each year’s audit will also “learn” from prior years, exposing areas of possible risk and building a self-enriching knowledge base to better inform companies.

What kinds of innovations do you expect to see from external auditors over the next 3-5 years?



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CARLOS SA:Everybody talks about IT and use of big data, but a more traditional and basic audit methodology might be equally important, although not innovative. Detailed company performance analysis – analytical reviews and otherwise – is and has to remain a crucial audit step. Indications that numbers are higher or lower than expected are crucial to be able to assess in what areas more audit work must be done. This is not a task for junior audit staff members, but for seasoned auditors who know the business and understand the strategic risks faced by the company. With a trend towards using more IT and data-analytics, auditors have to guard that they don’t lose grip on their knowledge and understanding of the business and the strategic risks.

Specifically for Brazil, recent frauds offer pretty clear examples of what’s needed. If the board authorized an investment of US$ 1 billion, for example, support documents, studies and opinions always exist. Auditors should look at this and any payment not in line with these documents must be questioned and checked. It’s that simple. In my view, many of the fraud cases in Brazil are missed because the audit teams are too young and the supervisory review is suboptimal.

MICHELE HOOPER:The first question I always ask is, what is the problem that regulators are trying to solve? Regulators in Europe initially were focusing on mandatory firm rotation to increase competition among the firms.

We also hear rotation as a way to bring in a fresh audit perspective and perhaps to improve audit quality. It’s important to be very clear about what you’re trying to fix. In my view, simply changing your auditor does not necessarily improve audit quality.

In the U.S., Sarbanes- Oxley clearly puts the responsibility for the hiring, evaluation and compensation of external auditors with the Audit Committee. I think this is appropriate because if we are doing our jobs correctly, the audit committee should be providing ongoing, robust oversight, and evaluating and benchmarking performance to be confident that we’re recommending the right external audit firm. Changing auditors is not something a company should undertake lightly or arbitrarily. And even when you change auditors for the right reasons, no matter how great the audit firm is, the audit tends to lose a step in that first transition year as the new team is getting up to speed on the company and its critical accounting issues.

KEES STORM:In the specific case of auditor rotation, I believe external auditors – for years now – had effective systems in place. Partner rotation, in my view, is effective in eliminating the majority of the negative effects of long standing external audit firm relationships with clients. I see mandatory audit firm rotation as additional compliance related matter on the plates of audit committees and a very challenging one indeed – certainly for multinational companies. We have to consider varying regulations in multiple jurisdictions and we work with most Big Four auditors anyway. Just recently, because of rotation requirements in Brazil, we had to put the group audit of Anheuser-Busch InBev out to tender in order for us to be able to work with only one auditor globally. The resources that go into the “compliance exercise” are immense.

HERBERT ONYE ORJI:Nigeria is on the verge of introducing a Unified Code of Corporate Governance. This initiative is led by the Financial Reporting Council of Nigeria and is likely to contain some mandatory rotation provisions for auditors.

A lot of progress has been made in the human conquest by doing repetitive

In your view, does mandatory rotation help or hinder audit quality?


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work. The auditors’ deep knowledge and insights into the organisation – gained from a long lasting relationship – thus surely helps in providing meaningful analysis and audit recommendations. Having said that, five years is half a decade. This is sufficient time in my view for an auditor to make an impact on an organisation. Mandatory audit rotation will be costly for companies, and I can therefore expect to see some resistance from some companies in the Nigerian market. However, I feel it should not be completely discarded because of the benefits it brings. One of the benefits for me is that this process compels management to re-invent themselves and to seek new ways of improving their source documentation processes in collaboration with the new auditors.

JAKOB STAUSHOLM:I fundamentally believe that it is healthy to get a fresh pair of eyes from time to time, but we need to look for a balance between a long term relationship – and related in-depth knowledge of the company and processes – and new vantage points to keep enabling sufficient challenges from the auditors. It is, however, important that mandatory changes are not too frequent. It’s similar to independence criteria for non-executive directors.

I think that non-executive directors become most effective in a big complex company after three to five years, but that it is sensible to replace them after seven to ten years. I think it’s not too different with audit partners and audit firms. Also, I would not distinguish between rules around audit partner rotation and audit firm rotation. A big downside of mandatory audit firm rotation is the huge amount of effort that goes into it – both in the selection process itself and in the change process to get new auditors up to speed.

JIM LIDDY:We’ve had a healthy dialogue on this issue here in the U.S., and I think most stakeholders simply don’t see mandatory rotation as a way of driving audit quality. The reforms put in place under Sarbanes-Oxley have clearly enhanced auditor independence and strengthened the reliability of financial reporting. Auditor independence, objectivity, and skepticism are constantly reinforced by existing measures under Sarbanes-Oxley – independent audit committee oversight, independent regulatory oversight, and our own system of quality control. And the more robust auditor communications with the audit committee and audit committee reports to shareholders are, the more confidence everyone will have in the independence and objectivity of the auditor and the audit process.

CARLOS SA:In Brazil, according to CVM rules, listed companies have to rotate the external audit firm every five years, with a possibility to extend this term to ten years if the company installs a statutory audit committee. Most companies have established such a statutory audit committee because, in my view, it is important to keep your external auditor on board for more than five years – although in general, I do believe mandatory rotation is useful and valuable to refresh knowledge and receive new professionals.



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Can you share some insights or “best practices” in evaluating and selecting auditors?

MICHELE HOOPER:Hiring and evaluating the external auditor is the audit committee’s responsibility with input from management. Investors and regulators should expect us to be on top of audit quality and the audit firm’s performance – and whether a change would be right for the company. As part of our routine processes, the audit committee should be regularly assessing the external auditor: the quality and sufficiency of the lead partner and the team, frequency and openness of communication and interactions, benchmarking against other firms, demonstrating objectivity, skepticism and independence. It’s important to remember that all audit firms are not equal. It’s amazing how different they actually are when you go through a detailed tendering process. Has the firm audited companies in your industry, or as complex as your company? Will the engagement partner have the right level of expertise, knowledge, gravitas, and leadership qualities? Does the firm have the right resources in the locations needed? Can the firm resolve any technical independence issues that they may have? How will the communication process work with the various global resources during the audit and with the company? Done correctly, it’s an intense process and evaluation to make sure that you select the right firm. I would not want to go through the full audit tendering process unless it was going to give us tangible value – so I would not want regulators to arbitrarily require tendering the audit.

KEES STORM:Most tender processes usually try to measure audit quality based on objective performance indicators. Sometimes, these can be very straightforward. For example the number of audit hours budgeted. And believe me, hours per firm can deviate a lot.

Of course audit hours – or other performance indicators – are nothing more than a good starting point for querying auditors in depth on their proposed team and approach. Interviews with the lead audit partner and his left and right hands are fundamental.

You expect to get auditors with broad general and sector-specific experience that are able to assess where the company is heading in the years to come and with sound professional judgment and skepticism. Also, the types of questions you receive from prospective auditors can tell you a lot about their knowledge and experience.

The other way around, I love to question the audit plan and approach in depth: Why do you end up with these significant risks and scoping? How do you plan to tackle these risks effectively? But also very specific questions can be useful – for example, how would you deal with a fraud case in India? What kinds of resources would you deploy and how? Questions like these also help you to get a view on the professional judgment and skepticism of an audit team. So I think it’s a combination of objective performance indicators and the audit committee’s intuition.

JIM LIDDY:A formal evaluation of the auditor should be conducted at least annually to assess the quality of the firm’s services and resources. Did the engagement team demonstrate the skills, reach, and understanding of the business to focus on the key areas of financial reporting risk? But assessing an auditor’s performance should also be ongoing. Beyond required communications, does the auditor communicate proactively and express frank views, whether management is present or in executive sessions? Does the auditor bring salient insights and perspectives on industry trends and regulatory developments that are pertinent to the company? The generally held view is that if a company is audited by a Big 4 firm, it’s going to get a quality audit; that’s the baseline. Beyond that, the bar is going to keep rising in terms of the value that companies expect from the audit – whether it comes from global resources or the use of data and analytics. Audit committees will find auditor selection to be a more nuanced consideration as the value of audit evolves and the future of audit unfolds.


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The audit committee’s role in the CFO succession processA huge scroll unfurls to the floor, bounces once and then continues to unspool across the room and out the doorway. It’s a classic comic exaggeration, but if we weren’t in the digital age, this scenario might not be far off the opening of a 2015 audit committee meeting. The list of agenda items has gotten so long and difficult to cover, it’s no wonder many are concerned about audit committee workload. With audit committees focused on financial reporting complexity, regulatory change, audit quality, and more, the issue of CFO succession often takes an unwarranted back seat.

It’s not because CFO succession and the need for a strong finance team aren’t recognized. More than one third of the Belgian audit committee members responding to ACI’s 2015 Global Audit Committee Survey said the audit committee needs to devote more time to “CFO succession planning and talent development in the finance organization” in the year ahead. Indeed, when asked to rank their audit committee’s effectiveness in specific areas of oversight, CFO succession came in last, with 73 percent of Belgian respondents rating the committee as “not effective.”

When we last posed the question (in our 2014 global survey), only 38 percent of audit committee members said the company had a formal succession plan in place.



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Responsibility and riskAudit committees that find their companies in this position may be inviting unacceptable levels of risk – but how do they prioritize this issue in the current environment? First, they should be clear about responsibility. With the board generally responsible for CEO succession, it stands to reason that CFO succession should fall to the audit committee. Beyond that, you will want to consult your charter to see how your duties in this area are defined.

Audit committees should also consider the implications of inaction. If your CFO announces that he or she is leaving in two months, what will you do? Companies and boards that are not prepared get pushed into reactive mode, incurring investor doubt and potentially facing downtime. It’s possible to operate without a CFO for a time, but why let it happen when a proper succession plan can ensure smooth transition and remove the risks associated with a prolonged candidate search and onboarding process?

Moreover, the quality of the finance team has immediate impacts on information quality, both the information available to the market and the information the audit committee receives, meaning a weak finance team that’s unprepared for CFO succession can affect not only corporate success but the audit committee’s ability to do its job.

Ensuring a strong finance organization – audit committee next stepsWhen the audit committee affirms its responsibilities around succession and understands the risks of inaction, what should it do next to ensure a strong finance team is in place and succession prepared for? Here are a few steps to begin:

• Ensure interaction with the finance team at all levels, including CFO, treasurer, head of tax, head of accounting and internal auditor; have them come to committee meetings, meet them and assess their quality. And do this annually – any CFO can leave at any time, so these reviews should take place regularly.

• Leverage the finance perspective – ask the CFO and finance team to propose a succession plan for you to work with.

• The audit committee chair should meet with the finance team even more frequently to develop an in-depth understanding of the quality residing at the next level of finance. To maintain the flow of quality information, develop a culture of accuracy and transparency, and mitigate the risks of unforeseen departures, you need a strong CFO, a dynamic finance team, and a clear, executable succession plan. If all the pieces are in place, succession should never be an issue, but if your CFO succession planning has taken a backseat, it may be time to re-balance priorities. Q25



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Boards of directors and audit committees looking to reassure themselves about their organisations’ ethical behaviour might ask the following questions:

Are we safe?Without a doubt all the companies recently in the headlines with stories involving ethics and integrity, irrespective of sector, will have relied on the conventional risk management and governance frameworks embedded in their organisations for the necessary risk assurance. Despite the significant investments deployed in training, awareness, compliance and endless monitoring for significant risks, it may have come as a surprise to senior management that the systems still appear to have failed in some catastrophic way. History shows that such incidents can hit any organisation but often the starting position is “it will not happen to us”.

Do we need to look beyond existing risk management approaches?Current business risk management models have their place in any well managed organisation. However, most organisations also suffer from blind spots and / or a

myopic operational view. With hindsight some have learnt to their cost that conventional risk management needs to be overlaid with an additional level of thinking. This includes, inter alia:

• Recognising that best practice policies, procedures and systems alone will not save the day.

• Not basing everything on trust and assuming that everyone is honest.

• Acknowledging that at any one time somebody will be ready to do the wrong thing.

• Understanding that sometimes good people will do bad things when under pressure; and then rationalise their misconduct as acceptable.

• Noting that the biggest threat to any organisation are the people within it, and it is the senior management that are in a position to cause the most damage.

• Recognising that red flags/signals often exist within an organisation – finding them and joining the relevant dots requires broad and inquisitive thinking.

Ethics and integrityBlind spots and red flags

Ethics and integrity are fundamental to an effective governance framework and the foundation for developing a culture that supports employee, customer and investor confidence. Notwithstanding compliance with an ever growing set of rules and regulations, if the ethics and integrity within an organisation are below par, then fraudulent financial reporting, reputational damage and business failure is more likely to occur.


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Why now and why does it matter?There are a number of macro factors that have been simultaneously at play over the recent past which have amplified the risks within global businesses, adding to the already existing complexity:

Economic downturn – economic pressures are breeding personal stresses (e.g., job insecurity, benefit reduction, reduced chance of promotion, funding addictions and lifestyle maintenance) and driving bad behaviours.

Regulatory tsunami – the ever increasing regulatory burden is leading to fatigue and opaqueness within businesses, while at the same time regulators are becoming more active and sharing intelligence cross borders.

Technological change – in many companies the multitude of IT platforms and increasing volume of data are being exploited to conceal wrong doing; in addition, theft of IP and data through cyber stealth is a critical issue, and social networks and 24 hour media channels massively accentuate the impact of any incidents.

Changing business models – off-shoring, outsourcing, joint ventures, extended and convoluted supply chains, extensive use of agents and distributors in country and shared service centres have all served to reduce management proximity and control.

Restructuring and cost cutting – erosion of internal controls is a by-product of de-layering, as middle management, who often provide the checks and balances, are removed.

Move to high growth territories – business risk profiles are changing as organisations are moving to higher risk jurisdictions in the pursuit of opportunity, double digit growth and increasing competition in mature markets.

Whilst these factors demonstrate the increasing risk profile, there is at the same time a continuing shift in attitude from consumers, shareholders and regulators. A “new normal” is now the byword with greater trust, accountability and transparency being demanded.

Furthermore, there is a significant cost to fraud and misconduct. KPMG estimates that a typical global organisation loses five percent of its turnover to fraud and misconduct. Those companies caught up in major incidents cite a number of negative business consequences: substantial amount of senior management time consumed tackling the issue (up to 25 percent), bad press, significant legal and regulatory costs to put things right, potential loss of customers, staff and suppliers, to name but a few

How do we spot the signals in our business?To ensure management are sensitised to the various signals within an organisation it is important that they think beyond their own operational/functional “borders”. Most operating models lend themselves to the disaggregation of risk which, when looked at in the round, may indicate that closer scrutiny is required. To illustrate the point, below are some examples that could well exist within one business unit. When looking at these in isolation, each could ordinarily be considered a separate and immaterial issue but they are in fact connected matters indicating signs of significant problems requiring closer examination.

Management – highly respected, charming but arrogant and domineering management team has been in place for a long time; senior management team resist being promoted despite their success; expat regional managers are culturally and operationally “in the dark”, not clear on the underlying growth success, but unquestioning as seen as a hero by head office; or consistently vague and changing explanations from local management to simple queries.

Performance – the operation always just meets stretching budgets; performance is out of kilter with market forces and competitors.

HR – unusually high employee attrition in a particular part of the business; low staff morale; or unquestioning obedience to local management.

Finance – increased revenues without a corresponding increase in cash flows; or significant and complex transactions at period end.

Manufacturing – unusual level of product returns.

Pay and reward – too much reliance on one KPI to measure success; or an incentivisation model designed to drive business but also the ‘wrong’ behaviours.

Supply chain – a select group of local suppliers chosen over centrally head office approved suppliers; suppliers paid in advance of service delivery; value of service difficult to measure; or no significant supplier track record even in the local market.

Compliance and monitoring – internal audit highlights numerous control weaknesses and, when considered collectively, indicates a general disregard for corporate governance.


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These are just an example of the ‘red flags’ that may sit within an organisation.

The external or internal threat of fraud, misconduct, unethical behaviour, and regulatory breaches is a constant risk that latches onto existing weaknesses and has no natural stopping point.

Post mortems of historic incidents have revealed that in many cases there have been more granular, visible and immediate red flags within a function that were missed and the early warning signals were not triggered. It is therefore crucial that organisations remain receptive to the more obvious tell-tale signs.

Do you recognise any of the selection of potential warning signs?

The questionGetting the right ethics and integrity embedded within a business is a complex process and this paper is by no means an exhaustive explanation of why bad things happen to good companies.

As a board or audit committee member are you happy that management are reflecting beyond their respective functional borders, are they finding those intelligence dots and joining them, minimising the blind spots and being proactive in avoiding the dangers which have crystallised and wreaked havoc for others?

In light of the experiences of others, what should we be doing differently?


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Employee behaviour:• autocratic management style / domineering decision

making;

• obsessive secrecy;

• senior management overrides;

• close relationship with supplier or customer dealt with exclusively by one employee and guarded jealously;

• certain suppliers or customers dealt with outside of the appropriate department;

• certain mundane tasks are retained when they could be delegated;

• evasive or excessively complicated answers to routine queries.

Cultural indicators: • overriding management attitude of results at all costs;

• low morale, high staff turnover;

• minor but regular failures to follow company procedure or policies and disrespect for systems;

• passive and unquestioning staff who may be turning a blind eye to irregularities;

• use of a favoured few suppliers / agents;

• habit of protracted discussions with regulators;

• culture of favouritism and nepotism.

Structural indicators:• discovery of undisclosed private companies controlled

by employees or directors;

• private companies related to the organisation are part of an unnecessarily complex or confusing structure perhaps involving off-shore entities;

• lack of separation between private and public company affairs remote locations which are evasive or provide minimal or inadequate information;

• transactions or structures created with no clear purpose;

• different auditors and different year ends for different parts of the organisation;

• frequent change of auditors;

• unnecessarily large numbers of adjusting journals.

Business indicators:• results always at or just above budget;

• results exceed market trend;

• aggressive accounting policies;

• aggressive forecasts;

• increasing number of complaints for products / services;

• reward schemes linked to results;

• unnecessarily confusing or complex transactions entered into.

Early warning indicators

Financial reporting news


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Revenue – 2018 effective date and new proposalsThe IASB has confirmed a one-year deferral of the effective date of its new revenue standard, and has proposed amendments responding to feedback that aspects of the new requirements are unclear. Companies are now required to apply IFRS 15 Revenue from Contracts with Customers no later than 1 January 2018. Early adoption continues to be permitted. This is consistent with the decision reached by the FASB earlier this month. The FASB plans several detailed exposure drafts, but the IASB expects to issue just a single set of targeted amendments, which it announced on 30 July 2015. The IASB’s comment deadline is 28 October 2015.

New standard on lease accounting – permission to ballot In a move that signals their determination to proceed with different lease accounting models, the IASB and the FASB have opted to prepare non-converged ballot drafts of their new standards on lease accounting.

Making financial statements more relevant In response to growing concerns about disclosures becoming less relevant and more boilerplate, the IASB has published amendments to its standard on the presentation of financial statements (IAS 1) and proposed amendments to its standard on statements of cash flows (IAS 7).

Investment entity amendments deal with application issues New requirements allowing investment entities to use fair value accounting came into effect from 1 January 2014, but early adoption had already highlighted a series of application issues. In response, the IASB has issued amendments on applying the consolidation exception to investment entities.

Read more of any of the publications above and more on IFRS:- KPMG Belgium IFRS Institute: www.kpmg.com/be/en/topics/ifrs-institute- KPMG Global IFRS Institute: www.kpmg-institutes.com/institutes/ifrs-institute

Other news and insights


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How boards drive value in family-owned business

A paper from KPMG and the Women Corporate Directors, sets out how boards can help family-owned business endure across generations.

The paper contemplates on what the benefits of good governance in a family-owned company are and defines three core enablers to this: clarity, culture and communications. It further focusses on building a strong board and provides the keys to effectively run a family business board and tips to effectively cultivate and motivate talent.

Read the full paper on the website of KPMG at www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/wcd-boards-drive-value.pdf.

Why CIOs should be business-strategy partners

McKinsey’s survey of business and IT executives finds that IT performance increases across the board when CIOs are involved in shaping business strategy.

In the survey on business technology, only few executives say their CIOs are closely involved in helping shape the strategic agenda, and confidence in IT’s ability to support growth and other business goals is waning. Moreover, it showed that IT and business executives disagree strongly on the function’s overall priorities – though both sides agree on the need for better data and analytics talent. The results suggest that closing the gap to engage more CIOs in strategy discussions could deliver business benefits and address widespread concerns over IT effectiveness.

Read the full article on the McKinsey website at www.mckinsey.com/insights/business_technology/why_cios_should_be_business-strategy_partners

Corporate Governance 2.0

Harvard Business Review proposes Corporate Governance 2.0 through 3 principles of what sound corporate governance means.

Over the years, achieving corporate governance best practices has been hindered by a patchwork system of regulation, a mix of public and private policy makers, and the lack of an accepted metric for determining what

constitutes successful corporate governance. The result is a system that no one would have designed from scratch. Posing that boards can do better, Harvard Business Review proposes Corporate Governance 2.0: not quite a clean-sheet redesign of the current system, but a back-to-basics reconceptualization of what sound corporate governance means, based on three core principles:

- Boards should have the right to manage the company for the long term.

- Boards should have mechanisms to ensure the best possible people in the boardroom.

- Boards should give shareholders an orderly voice.

Read the full article on the Harvard Business Review website at https://hbr.org/2015/03/corporate-governance-2-0.

Fostering effective working relationships among external audit, internal audit, and the audit committee

Stronger communications and cooperation among the key players in the financial statement auditing process can help avoid potential tensions and pay big dividends in improved risk management.

The report, published jointly by The Center of Audit Quality and The Institute of Internal Auditors, captures key points and takeaways from a series of roundtable meetings of internal auditors, external auditors, and audit committee chairs.

The paper shares best practices and strategies in three important areas:

- Creating a more productive and efficient external audit process within the constructs of regulatory requirements.

- Fostering better communication between internal and external auditors to build more effective working relationships.

- Introducing enterprise risk management to an organization.

The full report can be accessed and downloaded from the website of The Center of Audit Quality at www.thecaq.org.

About ACI

The Audit Committee Institute (ACI) champions good corporate governance to help drive long-term corporate value and enhance investor confidence. Focussing on the audit committee and supporting the director community more broadly, ACI engages with directors and business leaders to help articulate their challenges and promote continuous improvement. Sponsored by KPMG, ACI delivers actionable thought leadership – on risk and strategy, technology, compliance, financial reporting and audit quality – all through a board lens.

ACI Professionals

Olivier Macq, Chairman ACI BelgiumKPMG Bedrijfsrevisoren – Réviseurs d’Entreprises, Partner

Wim Vandecruys, Director ACI BelgiumKPMG Bedrijfsrevisoren – Réviseurs d’Entreprises, Senior Manager

Theo Erauw, Honorary ChairmanHonorary Certified Auditor

Contributing Editors

Dennis T. Whalen, Chairman Global Audit Committee Institute Steering Group

Timothy Copnell, Chairman Audit Committee Institute in the U.K.

Marie Lou Maher, Partner KPMG Canada

Contact us

Wim VandecruysAudit Committee InstituteBourgetlaan - Avenue du Bourget 40B-1130 Brussel - Bruxelles

www.auditcommitteeinstitute.beE-mail: [email protected].: +32 11 28 66 31Fax: +32 2 708 43 99

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received, or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. While every effort has been taken to verify the accuracy of this information, neither the Audit Committee Institute, its sponsors, professionals nor contributing editors can accept any responsability or liability for reliance by any person on this quartely newsletter or any of the information, opinions or conclusions set out in this quartely newsletter.

© 2015 KPMG Support Services ESV/GIE is a Belgian firm providing services to local member firms of KPMG International, a Swiss cooperative. Responsible editor: Olivier Macq, Avenue du Bourget - Bourgetlaan 40, B-1130 Brussels. All rights reserved. August 2015 . Printed in Belgium.

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ACI - Quaterly 25 · 2020-06-19 · more broadly, ACI engages with directors and business leaders...

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