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.
1. A focus on financial reporting and related internal control risks
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.
2. The oversight of AI
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.
3. The focus on cybersecurity and data privacy
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.
4. Oversight of sustainability and other ESG disclosures
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.