Risk management to dominate new normal
Monday, 02 August 2010

By Nick Lord

A truism of the last few years is that when things return to a post-crisis normal, they will in fact look very different. This 'new' normal is slowly starting to take shape. And while it is different to the world pre-crisis, it bears the scars of what has transpired over the last two to three years.

The latest annual survey from KPMG's Audit Committee Institute demonstrates the paradox that audit committee members believe things have returned to normal but that normal is very different to what went before. Perhaps the most glaring finding from the survey is that risk management is now the most important task facing audit committee members. Over 70 percent of 1,100 respondents to the survey (from 28 countries globally) said risk management was the dominant emphasis in their work. The next highest response, with 40 percent, was for financial reporting.

Only 40 percent of the audit committee members said their company had robust and mature risk management systems in place, although this figure changes dramatically from country to country. (For instance in the UK, more than 66 percent shared this sentiment). In response, many companies (34 percent globally) have formed executive risk committees or board level risk committees. The three biggest tasks facing these risk and board committees are understanding the velocity of risk events, understanding the link between strategy and risk, and the mitigation of risks.

One area within risk where increased activity seems noteworthy is financial communication. Forty percent of the audit committee members say that they now place extra scrutiny on earnings estimates and 36 percent say they do the same with earnings press releases. Twelve percent say they are scrutinizing the scripts for the analyst calls more closely.

The new normal thus looks a fearful and wary place. While audit committees in the past were only meant to look at the past and verify the numbers that had come out, they are now expected to look into the future and see what risks they can see. It is a very different set of challenges. But as 75 percent of KPMG's respondents say that things have returned to normal, we must assume that this is the new normal.

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