An organization’s audit committee plays a critical role in promoting effective risk management practices. Risk management is just one component of Governance, Risk Management and Compliance, and is an essential practice if an organization expects to achieve its strategic goals and objectives.
Acknowledging that it is management’s responsibility to assess and manage an organization’s exposure to risk, the audit committee needs to be actively involved in overseeing risk management practices and assessing the policies, practices and controls in place to mitigate risk specifically as it relates to financial reporting.
A key audit committee responsibility in risk management is overseeing and directing the internal audit function, which is charged with evaluating the design and operating effectiveness of an organization’s internal control environment and identifying critical internal control issues that could impact the organization’s ability to achieve its goals and objectives. The audit committee’s oversight includes assessing the scope of the internal audit plan. If management is unable to manage risk exposures and implement effective controls, the audit committee must be proactive to rectify the matter and install a high commitment to compliance.
In summary, the audit committee must have sufficient understanding of the organization’s risks and control environment to remain relevant and provide value.
Stacy A. Synowiec also contributed to this article.
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