Boards must ask more difficult questions of management teams, according to a study by accountancy firm Ernst & Young.
Boards must ask more difficult questions of management teams, according to a study by accountancy firm Ernst & Young.
The report suggests that the failure of board members to ensure that management teams understood the measures in place for assessing risk left businesses more exposed to the global downturn than they should have been.
A majority (76 per cent) of the 153 audit committee members participating in the survey said that their role had become more challenging in the last 18 months. Only 13 per cent of respondents rated their companies’ risk function as very effective.
Christian Mouillon, global assurance vice-chair at Ernst & Young, says: ‘The scope for boards and audit committees to improve is increasing and it’s essential for impacting the company’s overall performance. A major shift in perception is needed to elevate the attitude towards the risk function away from just another compliance exercise.’
Stakeholders’ demand for clearer information on financial management and market analysis may be leading to changing practices, claims the report.
John Flaherty, Ernst & Young’s assurance leader for the UK and Ireland, says: ‘Potentially, the global downturn could result in improved company reporting – and this could extend beyond financial information and traditional financial statements. For this to be achieved, management and audit committees must work together.’
