Risk, Economy, Regulation, Among Top Issues for Audit Committees

A recent EY report explores the issues audit committees considered in 2021 and which will inform their agenda in 2022. The report covers risk management, tax and related policy-developments, regulatory developments, financial reporting, and lists several questions audit committees can consider in relation to each topic. According to EY, dynamic shifts in risk management are occurring amid major challenges from the ongoing pandemic and the economic pressures of inflation and supply chain disruptions. EY noted that although risk management has climbed higher on the corporate board agenda, its survey of 510 global directors found some dissatisfaction in the perceptions of directors on enterprise risk management. “Despite the criticality of risk management, many board members lack confidence in their organization’s capabilities. For example, just 18% believe that their organization’s disaster response and contingency planning is highly effective, and only 13% believe that their organization is highly effective at embedding risk and compliance activities.” EY wrote.  “As companies build enterprise resiliency and revisit their risk management practices, audit committees and boards should continue to monitor the risk landscape and assess implications to the company.” The report discussed the SEC’s recent actions on climate risk disclosures and ESG. EY noted that audit committees should be aware of the steps companies are planning to take and how they will evaluate and adopt processes and controls related to potential new ESG disclosure requirements. With respect to financial reporting, EY anticipates that audit committees will continue to evaluate impacts of the pandemic and economy and the changes in the business environment on their financial reporting processes. The report outlined several considerations for audit committees including: How is the company using new technologies and data to enhance stress testing and scenario analyses to better anticipate surprises and significant variability in operating performance? Has management assessed whether the company’s current disclosures on climate‑related matters consider the SEC’s guidance? The full report from EY can be downloaded here.