“Audit Committee and Internal Auditors are considered as an extension of the Board’s Risk Management function.” Do you agree? Justify your answer.
Yes, this statement is fully justified. The Audit Committee and Internal Auditors serve as a direct extension of the Board’s risk oversight function.
Role of the Audit Committee
While the Board of Directors is the primary risk manager, the Audit Committee can be regarded as an extension of the Board’s risk management function. An auditing committee is a valuable tool to help management with the identification and handling of risk areas in complex organizations.
- It reviews management’s adherence to Board policies and procedures.
- It verifies the adequacy and accuracy of information reported to the Board by management.
- It reports periodically to the Board regarding adherence to policies and procedures.
- It improves communication between the Board and management.
- It evaluates risk management measures for their appropriateness in relation to risk exposures.
- It tests all aspects of risk activities and positions.
- It ensures effective management controls over positions, limits, and actions taken when limits are exceeded.
Role of Internal Auditors
- Internal auditors provide an independent appraisal of the bank’s operations.
- They review annual financial statements before their submission to the Board of Directors.
- They ensure that appropriate accounting policies and practices are used in the development of financial statements.
- They identify all significant discrepancies and disclosure problems.
- They highlight differences between the annual report and management accounts.
- They check management’s compliance with statutory and other requirements.
- They assess operations and suggest improvements.
- They ensure that managers fully understand the established policies and procedures and have the necessary expertise to implement them.
In short, the Board sets the direction and the rules. Internal Auditors and the Audit Committee verify that those rules are being followed. Without them, the Board would be working blind. That is why they are rightly considered an extension of the Board’s risk management function.
