Guidance on the 8th EU Company Law Directive : for Boards and Audit Committees

The objective of this FERMA/ECIIA Guidance is to assist board members, particularly members of the audit committee, with the implementation of article 41 of the 8th European Company Law Directive. In section 2b, the Directive states that: "[…] the audit committee shall, inter alia: monitor the effectiveness of the company's internal control, internal audit where applicable, and risk management systems […]." While this seems to be a rather simple statement, "what to monitor" and "how to monitor" are considerably more complex. In order to shed light on 'what' and 'how' to monitor, this guidance: First, provides an overview of the role and responsibilities regarding effective risk management and control assurance for: the board and audit committee; the chief executive officer and senior management; the operational management; and, the monitoring and assurance functions. Second, it clarifies the recommended interaction between internal control, risk management and internal audit. Third, the Guidance suggests good practices for board and audit committee oversight regarding: the risk management process; the internal control system; and, the internal auditing function. Important to note is that while the 8th Directive assigns this oversight duty to the organisation's audit committee, it remains ultimately the collegial responsibility of the entire board, and this guidance should be read accordingly. The transposition of the 8th Directive into national codes may necessitate further action beyond what is proposed in this guidance.