Beyond compliance: The role of boards and audit committees in trusted financial reporting

How the board and audit committee work together to promote trust

The composition of the board and audit committee is critical, as effective oversight is dependent on a diversity of backgrounds and experience alongside the skills and independence, to challenge management. Members need to understand financial information and the business’s risks well enough to ask difficult questions and recognise issues that require examination. Without this, challenge is weak and important issues may be missed.

The board sets the overall tone, risk appetite and expectations for transparency, while the audit committee focuses on financial reporting, controls and the audit in greater depth. Their work is most effective when regular communication runs both ways: the board’s openness to challenge allows the committee to probe, and the committee’s challenge gives the board confidence when it signs off. Emerging risks, control weaknesses and areas of significant judgement should therefore be discussed at full board level.

Compliance remains non‑negotiable, but trust is what the board and audit committee build through ownership of the numbers, underlying judgements and controls, steady challenge and transparent disclosures.

Shaping a culture that builds trust

Financial reports are built from decisions made across the organisation, so the culture surrounding those decisions is reflected in financial reporting. If meeting short-term targets becomes the overriding priority, pressure may grow to manage the numbers or present an overly optimistic picture.

Boards set the tone by making clear that honest, balanced reporting matters even when targets are missed. Audit committees reinforce this expectation by probing assumptions behind significant estimates and responding constructively when management raises difficult issues. Trust in reporting is reinforced when boards and audit committees demonstrate commitment to ethical behaviour and open dialogue.

Challenging the numbers

Closely linked to culture is the commitment to challenge the numbers. The credibility of financial reporting is shaped in the boardroom by how audit committees and boards question, listen and respond.

Reliance on management and auditors by audit committees and boards, without challenge, creates a risk of borrowed trust if the board just takes comfort from that work without developing its own understanding of the judgements that matter most to the report.

Challenging the numbers means asking why results appear unusually smooth or strong, comparing reported performance with cash flow and operational indicators, and considering less favourable scenarios alongside management’s expectations. Rather than seeking reassurance, directors should ask what evidence supports an estimate, how a control was tested and the reasoning behind a judgement.

A key consideration is to ask the right questions without turning challenge into conflict. Constructive challenge can bring issues to light earlier, provided questions remain open, respectful and focused on understanding. This allows for open and constructive discussions about issues rather than confrontation.

Behind the numbers sit judgements and assumptions on areas such as impairments, provisions, revenue recognition, valuations and going concern. Boards and audit committees should expect disclosures about these complex and judgemental areas to be clearly documented and explained in the report, so that readers can understand the reasoning behind the numbers. Where uncertainty is high, acknowledging it can support credibility.

Overseeing the control environment

Oversight of the control environment is key to trusted reporting and extends beyond controls over the financial reporting process to the systems and processes that produce the underlying data, including IT governance and cyber risk.

A robust control environment supports the reliability of reported information, even though this is not visible to readers. Weaknesses in controls may increase the risk of errors or even fraud going undetected, which is why boards and audit committees need to understand whether key controls operate as intended.

Audit committees should treat control weaknesses as a strategic risk, recognising their potential impact on reputation rather than viewing them solely as technical findings. Taking control issues seriously and escalating significant issues to the board demonstrates that reliability of reporting is a core priority.

Looking ahead

Trusted reporting must also look ahead, beyond a focus on historical information. Stakeholders want to understand how an organisation is preparing for uncertainty, so boards and audit committees should encourage disclosures that connect past performance with future plans and risks, explain how strategy will respond to emerging trends, and acknowledge where further work is needed. A forward‑looking perspective helps stakeholders judge not only how the organisation has performed, but how prepared it is for what comes next.

Boards and audit committees play a pivotal role in delivering trusted financial reporting that goes beyond compliance by working effectively together, shaping organisational culture, challenging the numbers, overseeing controls and promoting transparent disclosures about judgements, complex areas and future strategies.