**London**: Audit Committees are increasingly pivotal in overseeing enterprise risk management, particularly with the rise of generative AI. A recent report highlights the importance of financial expertise, risk governance, and ethical AI practices in enhancing supplier relationships and ensuring compliance amidst changing business dynamics.
In the context of dynamic business challenges, the role of Audit Committees (ACs) has evolved significantly, particularly as organisations face increasingly complex enterprise risk management (ERM) scenarios. According to a recent report from Mondaq News Alerts, an emphasis on robust governance oversight is paramount in addressing risks, with a specific focus on the integration of emerging technologies and the influence of generative AI in supplier relationship management (SRM).
The BDO 2024 Board Survey indicates that 31% of directors foresee enterprise risk management as the governance process that will demand considerable time and effort over the next year. The need for corporate risk assessments to encompass a holistic view, rather than merely focusing on financial reporting, is underscored by the current geopolitical factors and ongoing supply chain disruptions. The Audit Committee Practices Report revealed that 47% of respondents have assigned oversight of ERM to the AC, highlighting a concerted effort to integrate risk governance into the broader business strategy.
In terms of governance structure, who sits on the Audit Committee is crucial. Members must possess not just financial expertise but also a deep understanding of the company’s risk factors, which increasingly includes cyber risks and emerging technologies such as generative AI. The report outlines that effective oversight requires directors to have conversations with management about risk mitigation strategies, cyber incident response, and technology governance.
As the landscape of supplier relationship management evolves, the integration of unstructured supplier data via generative AI is emerging as a solution to extract meaningful insights and enhance supplier relationships. Many finance teams are currently exploring AI applications to analyse financial information, identify trends, and detect anomalies within substantial data sets. This technological advancement reflects how audit committees can leverage generative AI to optimise supplier engagement and ensure risk management practices are aligned with strategic objectives.
Importantly, ACs are tasked with ensuring that companies adopt ethical AI practices and maintain compliance with relevant regulations. They should focus on establishing robust oversight structures for generative AI usage by forming cross-functional teams that include IT, cybersecurity, and operations experts. This collaborative approach is crucial for monitoring the ethical deployment of these technologies within the supplier ecosystem.
The pressure exerted by stakeholders for increased transparency around technology governance, cybersecurity, and risk management underscores the importance of these advancements. Nearly two-thirds of Fortune 500 companies now mention AI in their annual reports, with a notable 11% specifically referencing generative AI. As such, it is essential for ACs to maintain clear communication regarding the impact of these technologies on corporate finance and audit practices.
The report acknowledges that while the integration of generative AI offers substantial opportunities, it also presents risks that need to be effectively monitored. ACs are encouraged to ask critical questions regarding the governance of generative AI, including the reliability and accuracy of data being used, risks associated with third-party suppliers, and compliance with the evolving regulatory environment.
Furthermore, the audit landscape is also changing, as external auditors begin to incorporate generative AI into their methodologies. Although this shift is still cautious, its potential to enhance audit quality and efficiency can significantly impact how organisations approach their financial reporting processes.
In conclusion, the role of Audit Committees is expanding to encompass a broader range of responsibilities that include the oversight of technology and significant emerging risks such as generative AI. By adapting to these changes and leveraging innovative solutions, ACs can enhance their effectiveness and contribute to the overall governance and success of their organisations amidst a rapidly changing business environment.
Source: Noah Wire Services
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