On July 8, the Institute of Internal Auditors (IIA) and the International Federation of Accountants (IFAC) issued Six Recommendations for Audit Committees Operating in the “New Normal”. The IIA and IFAC describe this paper as a “call to action” for audit committees to ensure objective oversight of organizational activities, including risk management, performance, controls, and key processes, as organizations confront the implications of COVID-19. In a press release, IFAC CEO Kevin Dancey said that the COVID-19 crisis “creates long-term risks and uncertainties that organizations need to confront head-on through strong governance and internal controls. We hope these recommendations will support governing bodies and audit committees as they navigate the continuously evolving operating environment of today and tomorrow.”
The recommendations call on governing bodies and their audit committees to:
Stay informed: Maintain a timely and clear understanding of the continuously-evolving operating environment and how it may impact organizational objectives and performance.
Communicate and collaborate: Adopt a multi-disciplinary approach to exercising oversight of internal and external audit and reporting through dynamic communication and collaboration.
Leverage available expertise: Seek qualified and reliable assurance and advice on management evaluations of, and responses to, the organization’s continuously evolving risks and risk profile.
Promote continuous improvement: Encourage innovation and change to address vulnerabilities and to build resilience, strengthening the pursuit of value creation.
Think holistically: Adopt a broad perspective of the organization and its environment across both financial and nonfinancial goals, considering interconnectivity with other organizations, internal and external interdependencies, and the central importance of people.
Embrace technology: Optimize the performance of the audit committee through the use of technology and flexible working practices.
The paper concludes with the observation: “Adoption of these recommendations may require a strengthening and refining of governance arrangements, including greater clarity of the respective roles of the governing body and its sub-committees, management, and internal and external audit. It may also lead to enhancements in the maturity of risk management and internal control activities.”
Comment: The IIA/IFAC recommendations are quite general and, at least for U.S. audit committees, don’t break new ground in terms of the scope of their responsibilities and of expectations regarding their performance. However, the recommendations do serve as a reminder of the attention to which audit committees may be subject in the wake of the pandemic. In this respect, the recommendations should be considered in the same context as the comments of SEC Chief Accountant Teotia regarding the role of audit committee oversight during the crisis. See COVID-19 Disclosure and Financial Reporting Guidance: Part III, above. In the aftermath of COVID-19, there is likely to be considerable scrutiny of how audit committees performed, particularly in cases in which, in hindsight, a company’s financial reporting is called into question.