Fundamentals of Risk Management

Risk assurance 
techniques
Audit committees
An increasing number of organizations have decided that it is appropriate to have an 
audit committee. Almost invariably, the audit committee consists of non-executive 
directors, with senior executive directors in attendance at audit committee meetings. 
It is chaired by a non-executive director, often referred to as the lead non-executive 
director, but usually not the non-executive chairman of the organization. The audit 
committee is generally not considered to be a sub-committee of the board, but has
a status and a seniority that enables the audit committee to evaluate all activities
in the organization, including the activities of the board itself.
Although the audit committee may be considered to be the guardian of compliance 
within the organization, the terms of reference are usually much broader than just 
compliance. The board of an organization will be responsible for governance 
throughout the organization, including co-ordinating the activities of specialist risk 
management functions. In this way, the board is responsible for the first and the 
second lines of defence. In other words, the board is responsible for the governance 
and risk components of governance, risk and compliance.
The audit committee is in a position to evaluate the governance standards within 
the organization, ensure that risk management receives appropriate attention, and 
seek assurance on the levels of compliance achieved within the organization. The 
role of the audit committee may be much broader than this, and includes evaluation 
of the arrangements for governance of the board itself. Many large organizations 
establish separate committees for making senior appointments, including appoint-
ments to the board. This committee will normally be referred to as the nominations 
committee. Likewise, many large organizations will have a committee responsible 
for establishing remuneration and benefits structures that will apply throughout
the whole organization.
The existence of a separate nominations or remuneration committee does not
diminish the role and responsibilities of the audit committee. Nominations and
remuneration, as well as some other committees, will be sub-committees of the board 
and are likely to have joint executive and non-executive membership. In reviewing 
the effectiveness of the board, the audit committee will also evaluate the effectiveness