Audit committee agendas and charters

Board and committee effectiveness

European Audit Committee Leadership Network, December 2014

Members of the European Audit Committee Leadership Network (EACLN) convened in Paris on 18–19 November 2014 where, in a members-only session, they discussed the expanding agendas and evolving charters of audit committees, focusing on how audit committees are managing and prioritizing agenda items in the face of mounting demands from stakeholders.

The ViewPoints provides a summary of the key issues raised during the discussion along with background information and insights that members shared before and during the meeting.

Since the 2006 passage of the European Union’s (EU’s) 8th Company Law Directive, which defined the role of the independent audit committee in publicly traded companies, audit committee responsibilities have continued to grow, and as a result, audit committee agendas have expanded. When the financial crisis hit, companies came under further scrutiny, and audit committees took on even more responsibilities, in the form of new agenda items and more in-depth focus on items that had previously not commanded as much attention. With this higher-profile role came more regulator and stakeholder scrutiny. One observer concluded that “the global audit committee community is now facing the same ‘expectation gap’ that historically has presented a challenge for the auditing profession.”

At the EACLN meeting in Paris and in conversations with members before the meeting, discussion focused on several themes related to audit committees’ growing agendas and their management:

  • The compliance burden
    Members agreed that as regulators at the EU and national levels prescribe more rules for companies to follow, it places additional burdens on audit committees who are tasked with overseeing company adherence to these rules. As a result, compliance comes to dominate audit committee agendas. Some voiced concern that compliance may obstruct the view of the bigger picture and feared audit committees risk losing focus on the business and business strategy.

  • The audit committee role in risk oversight
    How audit committees should respond to risk oversight was also discussed. Members noted that the audit committee often becomes the default home of risk oversight and questioned whether it was too much for one committee to handle. Members discussed how committee and full-board roles should be defined and where responsibilities should lie, such as strictly defining audit committee roles as overseeing the processes regarding risk management and having management be more responsible for raising specific risk issues.

  • Innovative measures for managing agendas
    Members shared techniques and strategies for managing agendas, including having frequent conversations with management outside the committee meeting, using technology to prompt attention to agenda items ahead of time, coordinating with other committees to minimize agenda overlap, and managing the flow of information to the audit committee.