The management of risk is a critical issue facing companies in today’s rapidly evolving business environment, and audit committees are being asked to shoulder much more responsibility than ever before. Risks involving financial reporting, internal controls, compliance and information security all require a tactical and multifaceted approach to their management, and increasingly the audit committee is being asked to help find solutions to problems in all these areas. Audit is also being asked to ensure that the company establishes and maintains a strategic and dynamic plan of action to deal with risk.
The audit committee has traditionally been tasked with an oversight role. The SEC states that the audit committee is a subcommittee of the board of directors which provides independent review and oversight of a company’s financial reporting processes, internal controls and independent auditors.
When operating effectively, the audit committee can ensure that appropriate and adequately designed controls are in place. It can then objectively assess those controls and the procedures related to them. However, in the wake of recent corporate scandals, a seemingly never-ending recession and a severe lack of confidence in the economy, there is a clear impetus towards improving governance practices, and now the audit committee is being called upon to expand its role in the areas of risk identification and mitigation.
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