According to Sally Freeman, KPMG’s national managing partner – risk consulting, the new guidelines include a number of important changes including the obligation on companies to disclose details of their internal audit function – or lack thereof.
“Greater disclosure of risk is also evident – economic, environmental, and social sustainability,” she said.
“We are pleased however that despite the terrible shocks caused by the GFC, the ASX has not been tempted down the heavily regulated route, and has stuck with a principles-based approach, which we strongly support as the best way to rebuild confidence and trust,” Ms Freeman added.
The renewed emphasis on risk is enshrined in Principle 7 which sets out the need for listed companies to have at least one committee to oversee risk, the majority of whose members should be independent directors, according to KPMG.
The principle calls on companies to spell out details of their internal audit functions or the processes they employ for evaluating and improving risk management and internal control processes. Companies are also required to disclose whether they have material exposure to a range of risks and how they intend to mitigate them.
“Principle 7 is, to me, the most fundamental of the changes, and reflects the central place of risk in modern business, post-GFC,” Ms Freeman said.
The focus on internal audit is also important,” she added.
“In a recent KPMG global survey of audit committee chairs, most were very keen for their internal audit functions to assess key risks as well as checking the internal controls, but many doubted these functions had enough skills and resources to do the job. This is something companies need to address.”
While the ASX principles and recommendations set the requirements for corporate Australia, it should be noted that many listed entities already have a board-level risk committee, Ms Freeman explained.
“Companies are now making much more effort on embedding risk into their operations – it has moved from theory into implementation. Risk is often the inverse of strategy and a company which clearly documents and manages its risk appetite and mitigation strategies is optimising its commercial positioning in the market,” Ms Freeman said.