The 2021 OECD Corporate Governance Factbook has just been released. It is a fascinating inventory of the state of corporate governance.
With comparative information across 50 jurisdictions including all OECD, G20 and Financial Stability Board members, the Factbook supports informed policymaking by providing up-to-date information on the ways in which different countries translate the Principles’ recommendations into their national legal and regulatory frameworks
The Factbook provides information on this changing market context and how regulatory frameworks are adapting to it. In the context of rebuilding our economies in the wake of the pandemic and promoting stronger, cleaner, and fairer economic growth, good corporate governance plays an essential role. It fosters an environment of market confidence and business integrity that supports capital market development. The quality of a country’s corporate governance framework is decisive for the dynamism and the competitiveness of its business sector and the economy at large. It will also support the corporate sector to manage environmental, social and governance (ESG) risks and better harness the contributions of different stakeholders, be it shareholders, employees, creditors, customers, suppliers, or adjacent communities, to the long-term success of corporations.
It deals with the issue of audit committees (page 146 of the report).
Nearly all jurisdictions across the OECD (90%) require an independent audit committee. Nomination and remuneration committees are not mandatory in most jurisdictions, although a similar proportion of jurisdictions at least recommend these committees to be established and often to be comprised wholly or largely of independent directors.
Audit committees have traditionally been a key component of corporate governance regulation, and 90% of jurisdictions now require listed companies to establish an independent audit committee, while the remaining jurisdictions recommend it in corporate governance codes. The key roles of the audit committee, as prescribed in the relevant EU Directive include:
- to monitor the financial reporting process.
- to monitor the effectiveness of the company’s internal control, internal audit where applicable, and risk management systems.
- to monitor the statutory audit of the annual and consolidated accounts; and
- to review and monitor the independence of the statutory auditor or audit firm.
Amendments to the Directive that took effect in 2016 also establish a list of permitted non-audit services requiring audit committee approval.
In the United States, the Sarbanes-Oxley Act of 2002 requires exchanges to adopt rules requiring independent audit committees to oversee a company’s accounting and financial reporting processes and audits of a company’s financial statements. These rules require independent audit committees to be directly responsible for the appointment, compensation, retention, and oversight of the work of external auditors engaged in preparing or issuing an audit report, and the issuer must provide appropriate funding for the audit committee.
While some jurisdictions (Sweden and Finland) allow some flexibility to enable the audit committee’s legally required tasks to be carried out by the full board, they have nevertheless been counted among jurisdictions that require audit committees, since their tasks are required.
