Audit Committee Advisory

New regulation for audit committee in the EU situate boards, audit committees and CFOs in a new reality

1. Awareness of mandatory audit committee monitoring of sustainability reporting and assurance

Starting from 2024 audit committees shall monitor sustainability reporting, risks and controls, integration into the annual report, as well as into the financial reporting, audit and assurance processes.

These new requirements are significant, comprehensive and detailed, and require audit committees to monitor sustainability reporting at the same level as they monitor financial reporting.

The new regulation on ESG disclosures will also expand the nature of the CFO’s role. The CFO should be responsible for consolidating and integrating sustainability reporting into the annual report.

The CEO and sustainability leaders should own and be responsible for the sustainability agenda, ESG data, risks, controls, reporting and assurance processes with input from and consultation of the CFO.

The CFO and any Chief Sustainability Officer should report to audit committees jointly, together and in an integrated manner.

In 2023, audit committees should understand trends that are rapidly emerging in climate reporting and the broader ESG governance landscape

2. Monitoring of preparation for mandatory sustainability reporting

As disclosure moves from voluntary to mandatory and becomes further aligned with annual financial reporting, the audit committee should understand the related data and measurement controls in place and the oversight structure in the organisation across the “E”, the “S” and the “G” to monitor and address related risks.

Key activities in 2023 include:

1. Strengthen individual ESG competences

2. Reassess ESG governance structures of the organisation, including mapping of competences

3. Establish revised board and executive oversight structures

4. Request ESG governance, risk and reporting training for the board, the audit committee and the executives

5. Request report from management on the foundation and ambition level for integrated reporting

6. Monitor identification of stakeholder issues and assess 'double materiality’ against business strategy and priorities

7. Monitor identification of key ESG data and reporting gaps

8. Monitor roadmap for project design and implementation for mandatory sustainability reporting

9. Ask probing questions about preparations for mandatory sustainability reporting

10. Develop roadmap for new audit committee activities related to sustainability reporting for 2023, 2024 and 2025.

Starting from 2024, audit committees have new critical oversight tasks as defined by the Corporate Sustainability Reporting Directive

3. Mandatory monitoring of sustainability risks, controls, reporting and assurance

Audit committees should execute on plan for compliance against the new requirements for oversight tasks of audit committees in relation to monitoring ESG reporting, risks and controls, integration into the annual report, as well as into the financial reporting, audit, and assurance processes.

Key activities in 2024, 2025 and beyond include:

1. Inform the board of the outcome of the assurance of sustainability reporting

2. Explain how assurance of sustainability reporting contributed to integrity, and what the role of the audit committee was

3. Monitor the sustainability reporting process, including the electronic reporting process

4. Monitor the process to identify sustainability information reported, and submit recommendations to ensure their integrity

5. Monitor the effectiveness of the internal quality control and risk management systems regarding the sustainability reporting

6. Monitor, where applicable, the effectiveness of its internal audit regarding the sustainability reporting

7. Monitor the effectiveness of electronic reporting process regarding the sustainability reporting

8. Monitor the assurance of the sustainability reporting, in particular its performance and any findings

9. Review and monitor the independence of the statutory auditors, also related to sustainability reporting

10. Review and monitor the appropriateness of the provision of non-audit services, also related to sustainability reporting

Our approach and how can Deloitte help?

At Deloitte, we guide our clients on audit committee effectiveness, training, plans, establishment, compliance, development and leading practices. Our practice is built upon an integrated model, supporting the audit committees, board secretariats, CFOs, finance and sustainability teams, internal audit and controlling functions, with our team of specialists.

Areas of expertise

We provide advice on all areas under the mandates of audit and risk committees, including specific areas such as:

• Committee chair advisory

• Committee effectiveness reviews

• Committee training on trends (e.g. cyber-resilience, ESG risk and reporting)

• Committee plans for activities related to monitoring of sustainability reporting

• Audit Committee Labs

• ESG Risk & Reporting Lab for the Audit Committee – a deep dive

• Internal controls framework development, reporting and oversight

• Charter and annual work plan

• Committee establishment, compliance, development and leading practices, incl. benchmarking

Team competences

Our experienced team includes specialists within corporate governance, audit and risk committee compliance, development and leading practices, including specific competences in IFRS and ESG reporting, data, processes, systems, internal controls, risk management, internal auditing, taxation, valuation and auditing specialists as well as senior audit partners.