7 areas of focus for Audit Committees in 2024

In 2024, Romanian companies, as many businesses in the world, face unprecedented challenges, but also opportunities. The geopolitical situation remains difficult, with continuing wars in Ukraine and in the Middle East and threats to supply chains. While inflation is generally being brought under control in the EU, the global climate of uncertainty continues to pose challenges to economic stability.

Moreover, with elections taking place in many countries, including Romania, the economic outlook, including future fiscal policies, is even more difficult to predict. At the same time, companies need to address the opportunities and challenges of integrating AI into their operations in a way which will maintain their competitiveness. On the positive side, Romania’s economy continues to register robust growth and presents many opportunities for companies which plan their activities wisely.

Audit Committees have a lot to think about in their role of overseeing the activities and performance of organisations as well as ensuring that they are compliant with legal requirements and ethical standards.

At KPMG in Romania, we interact closely with business leaders, and we have come up with a list of 7 key points which we believe should be on the 2024 Audit Committee agenda. 

Boardroom discussions on strategy and risk are likely to be closely linked to the global disruption factors and the risks arising thereon. For example, threats and potential threats to supply chains need to be carefully considered and different scenarios planned for. Asset quality in the financing sector needs to be assessed even more critically and prudently, taking into account estimation uncertainty. Focusing on the financial reporting - accounting and disclosure requirements posed by the current geopolitical, macroeconomic, and risk landscape will be a top priority and major undertaking for audit committees in 2024. Key areas of focus should include forecasting, disclosures, internal controls over financial reporting and control deficiencies.

There needs to be a clearly planned strategy for the development and use of AI, and, in particular, a robust governance framework for AI should be in place. This will enable businesses to take full advantage of the opportunities of AI, while also guarding against its pitfalls and addressing ethical concerns.

Cybercrime is an ever-present threat, which can cause massive disruption to a company’s financial position and reputation. Related to this is the strict regulatory environment on data privacy, with severe penalties for breaches. Audit Committees need to keep the risks of cybercrime at the forefront of their minds and ensure that their organisations have strong defenses against it, both through technological protection and by making sure employees are aware of the dangers.

An ESG strategy is now a prerequisite for any responsible business and firms are coming increasingly under scrutiny over their approach to ESG. Greenwashing is easily spotted. The Audit Committee needs to make sure that ESG is at the heart of the company’s strategy, and that the firm’s operations are clearly bringing benefits to the wider community. Moreover, ESG related risks should also be considered carefully and addressed.

Related to this is the growing body of regulation around climate change, particularly in the EU. The Audit Committee needs to make sure that the company’s management is preparing for new reporting requirements related to sustainability and climate change, as they need to be able to gather, measure, and report their ESG metrics. Organizations should begin preparing for ESG assurance if not already doing so.

It is essential that what organizations report to the public is accurate, robust and credible. Aside from being a regulatory compliance requirement in some cases, assurance services will give organizations the opportunity to test any significant judgments they may have made in measuring ESG metrics, spur investor confidence, reduce exposure to risks, and support in securing access to better financing. This will be a key activity as you embark or continue to make progress in your organization’s ESG reporting journey.

It is critical to the efficiency of an organisation and to following a strategy effectively. So it is important for the Audit Committee to make sure that the different parts of the business, such as its various committees, communicate effectively between themselves and with the Board. Moreover, encouraging a culture of open communication, both upwards, downwards and sideways, will be highly beneficial. 

Recruiting and retaining talented employees must be a priority for any successful organisation. There is a lot of competition for talent, so the Audit Committee should make sure that effective recruitment and retention strategies are in place, but also take care that succession planning is well thought out, so that if talented staff do leave, their work can be continued without undue disruption.

Audit quality is enhanced by a fully engaged audit committee that sets the tone and clear expectations for the external auditor and monitors auditor performance rigorously through frequent, quality communications and a robust performance assessment.

As audit committees wrestle with heavy agendas – and risk management is put to the test – internal audit should be a valuable resource for the audit committee and a crucial voice on risk and control matters. This means focusing not just on financial reporting and compliance risks, but also critical operational and technology risks and related controls, as well as ESG risks.

Overall, the Audit Committee has a key governance role, particularly when the business environment is challenging. By focusing on the 7 points listed above, Audit Committees can make an important contribution to the success of their organisation.

Boards counsel management, but who counsels audit committee members? At KPMG, we do. We help our clients grow, comply with regulations, leveraging the power of data and digitalization. We bring insights to help build competitive advantage and align strategies during the period of change and opportunity.

Read more about Internal Audit Services and how KPMG in Romania can assist your organization.