Efficient and effective capital markets require confidence in the corporate framework. Enter the audit committee, with its critical responsibility to ensure the integrity and transparency of corporate reporting.
At the centre of interactions between management, boards and statutory auditors, the role of audit committees in Europe has grown significantly during the last decade – and perhaps nowhere more so than in Central and Eastern Europe (CEE), where audit committees often first emerged to fulfil EU membership requirements.
Audit committees in CEE are therefore a natural focal point to look at, in order to understand how the corporate governance environment has changed and how it continues to change. Based on our conversations with audit committee members in seven countries – Bulgaria, Czech Republic, Hungary, Lithuania, Poland, Romania and Slovenia – audit committees in CEE are playing an increasingly important role in ensuring reliable and informative reporting. In many instances, the changes have been significant. But there are still a number of challenges to tackle.
The starting point differs from one audit committee to another; from one country to another. Across the region, audit committees are perceived to be growing into their role, no longer acting as mainly nominal entities, established to comply with legal requirements. The best-performing audit committees are adding real value, focusing on matters of substance and, where required, challenging management and/or the statutory auditor. Yet change can be slow, and for many there is still room for improvement.
Our conversations with audit committee members provide concrete examples of how individual audit committees are making a difference in CEE. The quality of financial reporting has improved. Internal controls put in place. The capacity of internal audit functions enhanced. Risk management systems evaluated. On the other hand, less attention has been paid to new and emerging challenges – from those relating to implementation of the 2014 EU audit package to emerging issues in areas such as digital and data security.
As audit committees in CEE (and across the EU more widely) react to evolving EU law, changing business needs and a challenging economic environment, we hope this joint ICAEW and Deloitte report helps understanding of some of the practical issues and common challenges they face.