Click on the following link for the full Harvard Law School Forum article: corpgov.law.harvard.edu
Dave Tate, Esq. comments. I am posting this because it is a good discussion – but you will note the date (July 13, 2015) – six months later would anyone still continue to argue that board oversight of risk culture is a new frontier? And it really wasn’t or shouldn’t have been a new frontier in July 2015 – the topic and the requirement has been around for longer than that, but perhaps boards were slow to take it on.
I would argue that “risk culture” is or can be two separate and distinct topics, or one combined topic. At least to me, “risk” is not necessarily the same topic as “culture.” When we talk about risk, we have to define what type or area of risk. Similarly, we need to define what type or area of culture. And culture is not necessarily the same as processes and procedures. See, for example, the second paragraph of the Harvard Law School Forum article in which the author discussed comments by SEC Chair Mary Jo White.
Types of risk or culture that we typically see in the news, for example, include product safety, workplace and work condition safety, environmental safety, financial and accounting internal controls, financial fraud, tone at the top/integrity, and pressure or culture on people to cheat or cut corners. And, of course, many other areas.
You can see my updated audit committee guide at my January 3, 2016, blog post. At part V. Committee Functions and Responsibilities you can see that at least some aspect of risk has already been an audit committee responsibility. I do argue that boards and audit committees need to clarify the extent of the audit committee’s responsibility for risk oversight.
And on a related point, evaluation of risk culture also should be taken into consideration when the external auditor is designing the independent audit – a poor or weakened risk culture, or at least as it pertains to accounting and related controls, increases the risk of fraud and accounting errors and irregularities.
That’s all for now. Enjoy the Harvard Law School Forum article.
Dave Tate, Esq., and CPA in California (inactive), San Francisco and throughout California