The Federation of European Risk Management Associations (FERMA) and European Confederation of Institutes of Internal Auditing (ECIIA) has launched a guide to the eighth EU Directive for boards and audit committees.

The associations believe there is nothing to fear from the Directive, saying the systems of control and risk management that it mandates will not act as a brake on entrepreneurial activity but instead will underpin it, if they are effectively embedded in an organisation.

FERMA and ECIIA have produced the guidance because they believe that board members, especially those who sit on the audit committee, will find it useful to have practical and focused advice from practitioners on their duties under article 41 of the Directive.

This article requires the audit committee to “monitor the effectiveness of the company’s internal control, internal audit where applicable, and risk management systems...”

As FERMA and ECIIA explain, this seems a rather simple statement, but what to monitor and how to monitor are considerably more complex.

The guidance:

•gives an overview on the role and responsibilities for effective risk management and control assurance for the board/audit committee, CEO and senior management, operational management and monitoring and assurance functions;
•clarifies the recommended interaction between internal control, risk management and internal audit; and
•suggests good practices for board and audit committee oversight as regards the risk management processes, internal control system and internal auditing function.

Peter den Dekker, president of FERMA, said: “What’s new with the eighth EU Company Law Directive is that there is a clear responsibility given to boards of directors and to their audit committees. Senior management is expected to be involved in risk management and risk taking. Directors have to give direction depending on the risk appetite of shareholders.”

Claude Cargou, president of ECIIA, added: “The duty assigned to the board and its audit committee by article 41 of the eighth Directive translates the expectations of capital markets for transparent and reliable information on significant current and evolving risks and on the way these risks are managed.

“Internal auditing provides objective and independent assurance on the effectiveness of organisation-wide risk and control systems. As such, it becomes one of the cornerstones of good organisational governance, supporting boards and audit committees to effectively assume their fiduciary responsibilities towards the company’s stakeholders and the public.”

Paul Taylor, FERMA board member and one of the authors of the guidance, said: “The guidance is practical, focused and user friendly.”

The guidance is free to any interested organisation or director. FERMA and ECIIA are sending copies to members and stakeholders. It is also available on the associations’ websites at www.ferma.eu and www.eciia.eu.

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