Despite escalating responsibilities, audit committees are spending less time on the priority issue of risk oversight, and also failing to develop diversity of talent and expertise within their own ranks.That’s the conclusions of Ernst & Young’s “2006 Audit Committee Survey,” which found that during the past year, audit committees have spent 20 percent or less of their time on risk oversight, and that 91 percent of audit committee members are over the age of 50, while only 8 percent of committees have more than one female member.
In late 2006, the Big Four firm conducted a survey of audit committee chairs and members from 176 companies across 11 industry sectors. The report provides details on top risk concerns and reveals best practices by industry sectors ahead of the curve in establishing risk governance practices.
Top concerns of respondents included regulation, M&A activity and information technology, although the survey found a discrepancy between expressed importance in risk oversight and actual time devoted to risk-related issues. The banking, insurance and telecommunications industry sectors seemed to be ahead of other industry sectors in establishing leading risk governance practices.
Besides allocating time, and paying attention to monthly or quarterly information reports, leading practices included:
- Establishing a risk committee (only 18 percent of companies surveyed had one);
- Meeting with regulators to be certain they have considered the full breadth of regulatory risk issues facing their companies (only being done by 20 percent of companies); and,
- Instituting a comprehensive process and structure to identify and manage risks.
The E&Y report also suggests that committees diversify their composition -- looking towards younger executives (under the age of 50), entrepreneurs, women and candidates from key global regions that are strategic to company growth plans. The committees might also benefit from greater regulatory and legal experience.Finally, the reports noted that the average audit committee member spends approximately 136 hours annually on all board and audit committee-related tasks -- for industry sectors with best practices, the number of hours was closer to 200 annual hours.
