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Is Your Bank’s Audit Committee Reaching the Summit of their Potential?

Dec 12, 2017

Just as a mountaineer needs a well-trained glacier team to reach the summit of Everest, community banks need effective audit committees to be successful in today’s challenging and changing regulatory and accounting environment. Audit committees provide needed oversight in the areas of risk management and financial reporting. An engaged audit committee is an important attribute of corporate governance for a financial institution. Currently, bank regulators are focused on assisting banks to develop high performing audit committees to assist the board of directors in fulfilling their duties.

Reaching New Heights of Bank Audit Committee Success

Similar to your desire to consult with a climbing expert to help ensure your best trek, CRI’s financial institution team works closely with many audit committees and has identified four common attributes among the most effective groups,

  1. Current Specific Charter
    An audit committee charter should outline the committee’s purpose, responsibilities, and composition. It is essential that the charter tailors its outline to the institution since “boilerplate” templates with elements that are not applicable to that institution are typically not performed by the committee.Also, the charter should be evaluated and updated at least annually, and sometimes even more frequently when specific circumstances warrant a change. The proposed charter updates should be presented to and approved by the bank’s board of directors.
  2. Regular Training Plan
    Relevant and consistent training is a necessary element of an audit committee. The committee should establish a training schedule and solicit topic suggestions from the bank’s internal auditors, regulators, and professional service providers. Audit committee members should have a process for staying current on accounting and regulatory matters. Additionally, the committee should have a detailed training regimen for new members.
  3. Self-Assessment
    When was the last time that your audit committee evaluated its performance? It has been the CRI financial institution team’s experience working with audit committees that these groups are hesitant to evaluate their performance because they are afraid of offending other members. However, audit committee members should provide honest, candid, and constructive feedback to one another on at least an annual basis to identify improvement areas. A self-assessment tool can be a great way to assist in this evaluation process. Some common self-assessment questions are outlined below.Does the audit committee set the appropriate “tone at the top” for the organization so that management and employees understand the group’s commitment to honest and ethical behavior?
    • Does the audit committee request specific feedback from the board of directors on its performance as well as assess the suitability of the committee’s communication with the board?
    • Does the audit committee review and understand the entity’s risk assessments formulated by management and the internal auditors?
    • Has the committee appropriately exercised professional skepticism when dealing with important issues and findings?
    • Does the audit committee have a long-term succession plan to help ensure that it has the necessary resources and skills among members?
  4. Executive SessionsAudit committees should have periodic executive or private sessions with the bank’s external and internal auditors. These sessions are critical because the committee needs an open venue to discuss essential topics and ask questions without management present.

Guiding Your Bank Audit Committee to Peak Performance

CRI’s financial institution team enjoys assisting audit committees so they can achieve their peak performances and offers a wide array of risk management services such as internal audits, regulatory compliance services, and loan reviews to financial institutions. Contact CRI’s financial institution team today.

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