The Sri Lanka Institute of Directors recently organized a webinar moderated by Suren Rajakarier – Partner, KPMG Sri Lanka to deliberate the responsibilities of audit committees during an economic crisis to update its members on the current thinking and trends from acknowledged leaders in the field.
KPMG Sri Lanka facilitates the Audit Committee forum for the SLID which brings together Audit Committee Members to discuss key issues and challenges in a way that is meaningful and relevant to them and helps them become more effective in their roles.
The keynote was delivered by Ms. Rachel Johnson – Global Head of Risk Management & Corporate Governance for Policy & Insights at ACCA and Member,
Accountancy Europe Corporate Policy, and Member of the OECD Corporate Governance Committee.
The panel comprised Ms. Aruni Siriwardena – Managing Partner, Advik Consulting, Shaktha Amaratunga – Independent Non-Executive Director, Hemas and Carson Cumberbatch Groups, and Lalith Withana – Managing Director, Agility Consulting.
In her keynote, Ms. Johnson said, “Whilst many countries may not have had an economic collapse as perilous as in Sri Lanka, 2022 has thrown the whole world a curved ball starting with the war in Ukraine which has accelerated the risks that the pandemic raised.
Each country has its macro and political headwinds to deal with from the record rising of inflation, energy crisis, online financial crime, and frequent extreme weather which are creating an ocean of emerging risks and uncertainties for organizations globally.
Digital enablement and changing business models are changing the expectations of
shareholders and stakeholders, placing more responsibility on audit committees,”.
“Audit committees should be clear with themselves, the Board, and senior management of their duties during crises, how did they change, and how they plan to fulfil these expanding duties and evaluate whether they have the relevant subject matter expertise and whether the CEO, senior management and other major decision makers are the correct leaders that can help steer the organization through the current crisis.
The most mature frameworks realize how vulnerable the processes and controls are
throughout the past couple of years.
It is also a crucial priority and the job of the audit committee to understand the risk appetite, and tolerance so that everyone making decisions shares the same attitude towards risk,” she added covering a range of topics, types of risks, and how to mitigate them sharing deep insights and expertise with the audience.
Answering a question from the moderator on how the audit committee can practically handle the wide- ranging types of risks including hyper-inflation during an economic crisis, Shaktha Amaratunga said,
“there should be a risk management process which is owned by the CEO and the management team with oversight by Board with an agreed risk matrix.
Risks should be prioritized and assessed whether they are being effectively managed and whether the process captures the emerging risks as well.
Businesses may not be aware of hyperinflation, and audit committees should start looking at the impact of hyperinflation
on accounting and reporting,” he added.
Responding to the moderator’s question on the role of audit committees to prevent knee-jerk-type responses to investments based on an immediate need or crisis, Lalith Withana said that it is important for Audit committees to think out of the box and take a forward-looking approach.
“These issues are taking place since audit committees are structured on a previous charter meeting every 3 months and to whom risk reports to which in some companies is a risk committee reporting to the Board separately to the Board and in others a CRO reporting to the CEO but not the audit committee.
We may need a different structure such as a risk SWAT or task team since we see some companies heavily impacted by
the current crisis” he added.
Aruni Siriwardena sharing her experience on setting up risk management frameworks said that knee-jerk responses were being practiced by state sector organizations citing the recent data file loss at the NMRA during the height of the pandemic.
“From a project management perspective, if we don’t meet the objectives and deadlines, every issue or risk that we face results in a financial impact to the organization
or project at large.
We bring in certain proactive measures to try to ensure that activities are categorized into urgent vs. important.
Very often, the audit committees in Sri Lanka meet each quarter and don’t get into operational activities. In such a situation, how do we ensure that the processes that were put in place are monitored and controlled?” she added.