Supervisory directors who sit on audit committees acknowledge that more and more is expected from them in improving the quality of financial reporting and auditing. They are well aware of the importance of their role as internal supervisors and believe that they are capable of exercising this role with sufficient scrutiny. This follows from an exploratory survey by the Netherlands Authority for the Financial Markets (AFM) among supervisory directors who sit on audit committees at listed companies. Sixty supervisory directors at 96 listed companies completed a questionnaire as part of the survey. In addition, 15 supervisory directors were interviewed.
Audit committees are currently not subject to direct supervision by the AFM. When the European Audit Regulation comes into force in mid-2016, the role of audit committees will be further strengthened. At that point, the AFM will assume the task of monitoring that role and the survey anticipates this.
To reinforce the role of the audit committee, the AFM argues that it is up to the supervisory board to decide if an internal auditor is necessary. The AFM also believes that, in practice, the influence of the CFO on the selection process for a new auditor often goes further than merely organising and advising on the selection process. According to the AFM, the audit committee should lead the process. Furthermore, the AFM would like the Corporate Governance Code to define the concepts of financial expert and IT expertise in more detail. Given the increasing complexity of financial reporting, internal control and auditing, it is important that supervisory directors' own knowledge matches this development.
Click here for the AFM summary.
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