The Audit & Risk Committee
The Audit & Risk Committee
The role of the Audit & Risk Committee (ARC) is to monitor the integrity of PKF Littlejohn’s financial affairs – including overseeing the Firm’s system of internal control and risk management, and reviewing the independence and effectiveness of the external auditors.
ARC members are appointed by the Board based on the respective experience and knowledge of finance, audit and governance matters of those individuals.
There are a minimum of three members of the ARC, at least one of whom is an Independent Non-Executive Director.
Terms of Reference
The Terms of Reference of the ARC can be viewed here.
The Firm’s Audit and Risk Committee (ARC) currently comprises of three members of the Board, including the two independent non-executive directors.
The ARC took on expanded responsibilities to those of its predecessor Audit Committee (AC) from November 2021.
Its expanded terms of reference were agreed with the Board. In addition to its previous responsibilities for the oversight of the relationship with the external auditors its role with regard to risk management was expanded and became more formalised.
The ARC in its new format held four meetings during the year to 31 May 2022.
The ARC continued to be responsible for oversight of the audit of the Firm’s financial statements. It did this by meeting with the auditors at the planning and completion stage of the audit and noted that there were no significant concerns arising out of the process.
The enhanced responsibilities for risk management included monitoring the effectiveness of the Firm’s systems of internal control and risk management, including:
- Selection and adherence to risk appetites
- Consistency of risk policies with the Firm’s strategy
- The processes and procedures in place to identify, monitor and report risks and any deficiencies including identifying emerging risks
- How the controls and reporting in place manage identified risks
- How the Firm’s strategy, culture and risk attitude align with sound risk management
- How the Firm addresses key risk issues and any risk management failures
These risk responsibilities of the ARC to monitor and review the effectiveness of the Firm’s internal control and risk management systems are undertaken in conjunction with the Board as well as by the ARC engaging with the various key risk controllers across the Firm. This enabled the ARC to satisfy itself that key risks, including areas of identified increased risk, were being addressed.
The ARC is continuing to work with the board on increasing the formalisation of its policies and procedures with regard to risk and the identification, reporting and monitoring of risks and controls.
The ARC identified four particular areas of focus for the last year:
- The impact of the Firm’s continued growth on resources and quality. The Firm’s continued strong growth has meant that maintaining sufficient expert resources at all levels continues to be a key area of focus for the business, ensuring it continues to deliver a quality product to its clients. The ARC noted that there has been significant recruitment and promotion at all levels again in the last year alongside significantly increasing headcount. It also looked at how, as the Firm returns to more normal operations, an enhanced training programme is being implemented to ensure the partners and staff can continue to deliver the best possible quality and service. As a fundamental driver to the Firm’s success, the ARC will continue to monitor the Firm’s progress in this area. As the Firm progresses from the enforced remote working caused by Covid, the ARC has monitored the training plans for staff and the encouragement to increase attendance at the office and at clients’ premises to re-engage with the essential learning processes that arise from close contact with colleagues and clients. This is in turn balanced with providing a level of flexibility to ensure the Firm remains an attractive and flexible environment in which to work.
- The impact of more listed clients and greater external scrutiny. The Firm has continued to win more listed and highly regulated audit clients. Also, there are additional requirements arising from auditing standards as well as enhanced requirements from the FRC relating to auditor regulation. The ARC has monitored how the Firm is seeking to ensure that its systems and procedures, including oversight, are being evolved to ensure the enhanced requirements are met.
- The preparation for audits in relation to periods commencing after 15 December 2021 when revised auditing standards come into effect, particularly ISA 315. This has led together with a need to progress to a more modern technology platform the Firm to move to a new electronic working papers platform. The timeline for receiving these working papers, testing their compliance with audit requirements, testing their operational effectiveness, making the Firm’s own bespoke enhancements, rolling forward of old working papers onto the new system and training staff on their usage has been compressed by the date of delivery of the updated working paper system from the supplier. The ARC has therefore been closely monitoring the Firm’s preparation for the system change and all of the different elements required to ensure it will be available and successfully deployed in the latter part of 2022.
- With cyber risks becoming increasingly prevalent across the world, it becomes an increased risk for the Firm’s own systems. Although there were no significant issues arising during the period the ARC has been keen to see that the Firm continues to enhance the controls around its IT. In particular it is in the process of securing accreditation around its IT controls to provide the Firm and its clients with additional confidence that the IT controls remain appropriate and are operating as intended.
Looking ahead, the immediate focus of the ARC, in conjunction with the Board, remains on ensuring the completion of the Firm’s migration to a new system of electronic working papers that embed the latest auditing standards and refined Firm’s audit approach onto a more modern technological platform. This transition is aligned with ensuring the necessary training is implemented to ensure the revised auditing standards and refined Firm’s audit procedures, along with how the new technology works, is appropriately understood by partners and staff. There will also be a focus on monitoring the Firm’s enhanced quality control procedures with regard to the Firm’s oversight controls to ensure the Firm continues to meet increasing requirements arising from auditing standards and the FRC.