Risk Management in a Cost-Cutting Environment

Increased risk In times of cost-cutting, organisations may be at increased risk due to poor morale, staff changes, or individuals and divisions cutting corners in attempting to meet the original expectations. Tone at the top Boards should set a cultural expectation that everyone in the organisation will act with integrity, and will make it clear what operating and financial practices are acceptable. The need for internal audit The audit committee should ensure that internal audit is focused on its prime role of maintaining financial integrity. Increased liaison with auditors Audit committees are spending more time with internal and external audit, to ensure that potential problems are known in advance, and risk areas highlighted. Impact on financial results Budgets, forecasts and impairment calculations must be prepared with a realistic understanding that the economic environment has changed substantially. There is less of a push to ‘make the numbers' than in previous recessions, and more realism about the health of the business. In some companies, the audit committee is holding management back from issuing profit warnings before they are needed. ‘No surprises' is the mantra from the audit committee. Going concern Proposed changes in guidance from the Financial Reporting Council are unlikely to have a major impact on practice, given what audit committees are currently do