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Audit committees must balance independence with competence
July 2016

Audit committees must balance their ability to be independent with the right level of competence if they are to effectively challenge management, according to attendees at a recent event organised by European Confederation of Directors Associations (Ecoda) and Pwc.

“Too much independence for audit committee members could come at the price of less competency,” UK non-executive director Philip Johnson, told delegates in Brussels in June. He said finding independent members can prove to be difficult as a result of over-regulation and, therefore, said their effectiveness should be prioritised over independence.

Inge Boets, a member of several audit committees in Belgium, said that while it was preferable to have a majority of independent members on the audit committee, having a committee that had complementary and diverse experience was also key.

Tjalling Tiemstra, Chairman of the Audit Committee at ABN Amro Bank and various other non-executive positions in the Netherlands, said that it was important that audit committee members were on a similar level of competency as the chief financial officer.

“I feel there is a lack of recognition of the importance of competency, as the audit committee requires ability and character to challenge management,” Tiemstra added.

The event focused on the corporate governance implications of the recent EU Audit Directive and Regulation, which was adopted by the European Union in 2014. The rules, which came into force this year, give additional oversight responsibilities to audit committees.

Alain Deckers, Head of Unit, Audit and Credit Rating Agencies, DG for Financial Stability, Financial Services, and Capital Markets Union (FISMA) from the European Commission, told delegates that twenty countries would have had completed their preparations for the new legislation by the end of the summer. He said that better engagement with the European Commission and audit committees would help bed in the new rules.

“There appears to be an unequal experience when it comes to engaging with audit committees,” he said. “Better engagement can allow us to understand how processes are handled.”

Click here for an EC fact sheet on the new rules.

Click here for a summary of the event.

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