Independent Non-Executive Directors need to sit on audit committees – Hilary Galea-Lauri

Experienced auditor Hilary Galea-Lauri on Thursday highlighted the need for Independent Non-Executive Directors to sit on companies’ audit committees to allow for greater clarity and interaction between senior management.

Mr Galea-Lauri has years of experience working on assurance, audit quality and readiness, among other areas. He worked at KPMG Malta for close to 38 years, and was recently appointed Independent Non-Executive Director and Audit Committee Chair at dLocal, a major global payment gateway platform focused on the African, Asian, and Latin American regions.

In a post on social media, the seasoned auditor affirmed that ever since he was a student, he had always heard the phrase that “an auditor is a watchdog and not a bloodhound.”

His reflections came as he was observing the International Auditing and Assurance Standards Board’s (IAASB) project to revise International Standard on Auditing (ISA) 240, which focuses on the auditor’s responsibilities related to fraud in an audit of financial statements.

Through the revisions, the IAASB is seeking to clarify the role and responsibilities of the auditor for fraud in an audit of financial statements, as well as promote consistent behaviour and facilitate effective responses to identified risks of material misstatement due to fraud. Additionally, it also aims to enhance the standard so that it reinforces the importance of the appropriate exercise of professional scepticism in fraud-related audit procedures, enhancing transparency in this respect as well.

Mr Galea-Lauri highlighted that it is important for businesses to remember that the responsibility of preventing and detecting fraud “primarily rests with management and those charged with governance of the entity.”

“The primary purpose of an audit remains to provide an independent assessment of whether an organisation’s financial statements are presented fairly in all material respects in accordance with the applicable financial reporting framework,” he affirmed.

Last month, Mr Galea-Lauri stressed that there is a gap between what the public expects auditors to do and what their actual responsibilities are. He had divided it into a “performance gap” and the “reasonableness gap,” noting that this has been a subject of ongoing debate and concern within the auditing sphere. Additionally, he said that the “right compositions of Directors” can serve as a “crucial bridge” to narrow the expectations gap.

In his latest post, he took on a practical example to highlight the contrast in expectations, stating that while it is correct to state that statutory auditors have the responsibility to detect “material misstatements arising from fraud” as part of their role when performing an audit, they are ultimately “not investigators in the traditional sense as some may consider them to be.”

“Again, the importance of the Independent Non-Executive Directors sitting on audit committees working within organisations and, equally important, the statutory auditor’s interactions with the committee in planning the execution of the audit, come to the fore,” Mr Galea-Lauri added.

While the IAASB’s project to revise ISA 240 is set for final approval in March 2025, the board is inviting all stakeholders to submit their comments and share their insights on this matter 5th June 2024.

“Now is the time to be heard,” Mr Galea-Lauri continued.