Effective oversight role of audit committees
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The document discusses the effective oversight role of audit committees, including assigning risk management responsibilities, the composition and reporting lines of combined and separate audit and risk committees, the role of the audit committee in overseeing internal audit, internal controls, external auditors, and ensuring proper whistleblowing policies and procedures are in place. It provides guidance on topics like committee structure, roles and responsibilities, independence, coordination of internal and external auditors, and skills and qualifications needed.
Effective oversight role of audit committees
- 1. “EFFECTIVE OVERSIGHT ROLE OF AUDIT COMMITTEES” PRESENTED BY: MITESH PATEL
- 2. INTRODUCTION Assign oversight of risk management to appropriate committee Combined audit & Risk committee Risk committee Always a board responsibility Governance of Risk Must take into account legislative requirements of composition of companies act for audit committees
- 3. COMBINED AUDIT & RISK COMMITTEE Composition At least three independent non executive directors. Compliment by member of executive INVITATION ONLY FOR RISK ASPECT NB: Anyone appointed as opposed to invited (whether director / not) bears all responsibilities and liabilities without a right to vote
- 4. SEPARATE AUDIT & RISK COMMITTEE Directly to the board Risk committee must have audit committee representative to ensure that audit committee is fully aware of risks. Audit Committee RISK COMMITTEE CAN REPORT
- 5. ROLE OF AUDIT COMMITTEE IN RELATION TO RISK MANAGEMENT Role of audit committee in relation to risk management Audit committee plays an Integral part of risk management Primary approach to risk is to assure itself on mitigation and management process of actual or potential risk Audit committee must satisfy itself that the following areas have been addressed Risk identification and assessment Risk management and mitigation Focus should be on financial reporting process that encompasses Internal financial controls Financial reporting Fraud IT risk
- 6. OVERSIGHT ROLE OVER INTERNAL AUDIT AND INTERNAL CONTROLS INTRODUCTION REPORTING LINES Internal audit should be an independent and objective assurance and consulting activity Assists in bringing systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control and governance Should acknowledge that audit committee and not management is the primary client Must retain independence to ensure that it carries out it's function impartially and the audit committee must review this periodically Chief audit executive should, report directly to the chairperson of the audit committee Chief audit executive should also have access to the chair person of the board Internal function can be in house or out sourced depending on the availability of appropriate skills and depth of ability to cover entities business operations adequately Audit committee should be involved in the dismissal or appointment of chief audit executive Internal audit should report to the audit committee
- 7. OVERSIGHT ROLE OVER INTERNAL AUDIT AND INTERNAL CONTROLS…cont INTERNAL & EXTERNAL AUDIT CO- ORDINATION COMMUNICATION S Must have frank and confidential discussions with audit committee, through in-committee meetings Communication from internal audit must be in written report format, together management responses on findings External audit is responsible for auditing and attesting to financial statements Internal audit is responsible for monitoring performance of internal control and efficacy of controls in new information and technology systems External audit should identify relevant internal audit activities that are relevant to the planning of external audit Internal audit should report to the audit committee Audit committee should ensure that external & internal audit efforts are coordinated and the there is effective communication between parties
- 8. Appointed firms to be appointed based on capacity and empowerment rating and national presence, if shortfall identified consider partnering with adequately capacitated firms. If not outsourced CAE to be adequately competent for the company needs. Traditional accounting skills, Business skills, Industry knowledge and technology based expertise Performance criteria and expectations should be clearly communicated in writing by the audit committee Must ensure auditors have recognised qualification CA(SA) with IA experience or (CIA) and must be registered with the Institute of Internal Auditors SKILLS AND RESOURCES
- 9. ROLE AND SCOPE OF INTERNAL AUDIT Review of "tone at the top“ Objective evaluation of risk and internal control framework Assessments of the accomplishment of corporate goals and objectives ASSIST THE AUDIT COMMITTEE IN DISCHARGING RESPONSIBILITY BY: Performance of efficiency and effectiveness reviews – for e.g. PFMA Systematic analysis of business processes and associated controls Review of financial and operational performance Reviews of existence and value of assets and liabilities Review of compliance frameworks and specific compliance issues Source of information of fraud and irregularities Adhoc reviews of areas of concern or with unacceptable levels of risk Recommendation for more efficient and effectiveness use of resources Feedback on adherence to the entity values and code of conduct or code of ethics
- 10. OVERSIGHT ROLE OVER EXTERNAL AUDITORS INTRODUCTION Audit needs to rely on external auditors to achieve it's goal of recommending financial statements for approval Audit committee is charged with oversight role over external audit Audit committee must assess the independence of the external auditors and performance of the external assurance providers Audit committee must ensure that the external audit has the relevant experience and composition to perform the audit
- 11. OVERSIGHT ROLE OVER EXTERNAL AUDITORS..cont Audit committee's should ensure that external auditors have implemented appropriate safeguards which may include: AUDIT COMMITTEE'S ROLE IN MONITORING AUDITORS INDEPENDENCE Audit committee safeguards could include: Designating which types of services may or may not be performed by the external auditor having regard to audit committee perception of independence of the external auditor Corporate governance procedures in agreeing the level of auditor remuneration for audit and non audit services Capping the level of non audit fees as percentage of audit and other assurance fee Audit committee must approve all non audit services provided by the external auditor Policies and procedures for providing non audit services Monitoring of compliance by the firm with its own policies Segregation of duties between audit and non audit services between different partners and staff of the firm Internal quality review processes Second partner consideration of the impact of other services on the quality and independence of the audit Discussion and disclosure of independence related matters with the audit
- 12. WHISTLE BLOWING/ETHICS LINE The audit committee should also consider the following questions as it oversees the internal audit function: • Are whistle-blowing procedures documented and communicated throughout the organisation? • Does the policy make clear that it is both safe and acceptable for employees to raise concerns about wrongdoing? • When employees raise concerns, are they responded to within a reasonable timeframe? • Are there procedures to help ensure all reasonable steps are taken to keep the identity of whistle-blowers confidential? • Has a senior person been identified to whom employees can disclose confidential concerns? Does this person have the authority and determination to act if concerns are not raised with - or properly dealt with - by immediate line management? • Is there a reporting to the audit committee of all whistle- blowing concerns that have been initiated?