Audit committees take on broader oversight.

As audit committees adapt to the heightened scrutiny and glare of the spotlight created by new regulations, they are also experiencing an evolution of their role to include broader oversight in matters of financial responsibility and risk management, according to findings based on Ernst & Young's 2006 Audit Committee Survey.

"Whether scrutinizing financial statements or exploring the possible risk from a cross-border transaction, the work of audit committees is vital to the future success of the companies they serve," said Karole Lloyd, vice-chair, industry and knowledge.

In late 2006, Ernst & Young conducted a survey of audit committee chairs and members from 176 companies across 11 industry sectors. Survey respondents report placing an increasing priority on risk issues, with regulation, mergers and acquisitions/divestitures and information technology leading the list of top concerns. Yet, the survey finds a discrepancy between expressed importance in risk oversight and actual time devoted to risk-related issues. A majority of respondents indicate that 20% or less of the total meeting agenda is devoted to risk. And though most audit committees report having a clear understanding of their company's risk issues, only about half of audit committee respondents receive either quarterly or monthly updates from their companies.

The banking, insurance and telecommunications industry sectors seem to be ahead of other industry sectors in establishing leading risk governance practices. In addition to the greater time allocation and monthly/quarterly reports mentioned above, leading practices include:

* Establishing a risk committee (currently, only 18% of companies surveyed had a risk committee);

* Meeting with regulators to be certain they have considered the full breadth of regulatory risk issues facing their companies (currently, only 20% of companies reported meeting with regulators); and

* Instituting a comprehensive process and structure to identify and manage risks.

"Audit committee members need to understand risk drivers that are unique to individual industry sectors, countries and regulatory environments," said Lloyd. "Those who bring a specialized knowledge of culture and issues will help the committee to capture the complete risk picture."

With the rapidly changing risk and global business landscape, it will be important for audit committees to consider untapped pools of candidates. The Ernst & Young survey finds that 91% of audit committee members are over the age of 50, with more than half between the ages of 61 and 70. In addition, only 42% report they have full-time outside employment. Half of all respondents say they have at least one woman on the audit committee--but only 8% have more than one.

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