A Leadership Prescription for Audit Committee Members: “Energizing your Audit Committee to Ask the...
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Transcript of A Leadership Prescription for Audit Committee Members: “Energizing your Audit Committee to Ask the...
A Leadership Prescription for Audit
Committee Members:
“Energizing your Audit Committee to Ask
the Hard Questions”
Presentation to
CAACM’s 5th Annual Meeting & Conference
in Collaboration with ICATT
July 13, 2011
The Hyatt Regency, Port of Spain, Trinidad.
Presented By:Mr. Larry Kowlessar
andDr. Lennox Sealy
Organization Development Consultant
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CAIB 2011 THEMEAdding Value Not Bureaucracy: The
Role of the Audit Committee in Assessing Your Business Risk Profile,
Risk Priorities and Governance Structures
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32% die of old age
30% die from cancer
25% die from heart disease
10% die from road and other accidents
2.5% die from insect and snake bites
0.5% are taken by crocs and sharks
…….and it is expected that by 2020 0.1% will start dying from boredom because of listening to PowerPoint presentations at Conferences
Recent research shows the following Population Statistics
PRESENTATION FLOW
1.0 The End1.0 The End
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2.0 The Beginning2.0 The Beginning
3.0 The Continuation3.0 The Continuation
Let’s Start with…..
Finish with…
Continue with…
1. Be reminded of the Role of the Audit
Committee
2. Hear an interpretation of the challenges
of an Audit Committee in today’s
environment and
3. Digest some recommendations as to
how Audit Committees can add value
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AFTER HEARING MYPRESENTATION YOU WILL…
AFTER HEARING MYPRESENTATION YOU WILL…
CLOSING THOUGHT
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Question: Why do luxury cars and large vehicles have great braking systems?
Answer: Because if they are large and /or can go fast .. They must be able to stop more quickly
1.0 The End1.0 The End
Controls have traditionally been viewed as a stifling of freedom or creativity, but it
also can be viewed as a way to improve or allow speed, freedom and creativity
More Control ... More CreativityMore Control ... More Creativity
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What Really is an Audit Committee?
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2.0 The Beginning2.0 The Beginning
THE AUDIT COMMITTEE
"The Audit committee is the governance body that is
charged with oversight of the organization’s audit and control
functions”
(International Institute of Auditors (IIA)Practice Advisory 2060-2 of 2004).
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10February 14, 2007
Audit Committee Context Board of Directors – determines and approves
strategies, sets objectives and ensures the objectives are being met
Audit Committee – responsible for overseeing the internal control structure (operations, compliance, risk and financial reporting)
Senior Management– defines, develops, implements, and documents the internal control structure
External Audit – attests to the fair statement of financial results
Internal Audit - validate the internal control structure
by analyzing the effectiveness of internal controls 10
“Audit committees are designed to help boards and directors
discharge their duties regarding :
Reported financial information Central controls
Corporate codes of conduct (if any exist).
“Audit committees are designed to help boards and directors
discharge their duties regarding :
Reported financial information Central controls
Corporate codes of conduct (if any exist).
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Why an Audit CommitteeWhy an Audit Committee
THE AUDIT COMMITTEE ROLES1. Overseeing the financial reporting and disclosure
process2. Monitoring choice of accounting policies and
principles3. Overseeing hiring, performance and
independence of the external auditors4. Oversight of regulatory compliance, ethics, and
whistleblower hotlines5. Monitoring the internal control process6. Overseeing the performance of the internal audit
function7. Discussing risk management policies and
practices with management
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Typically the role, responsibilities and authority of the Audit Committee will be set out in a board approved Charter.
As noted in IIA Practice Advisory 2060-2 Internal Audit has an important role to play in assisting the Audit Committee to ensure that its charter, activities and processes are appropriate to fulfil its responsibilities.
Audit Committee Charter
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The Charter must be reviewed regularly as new responsibilities are taken on by the Audit Committee.
Internal audit can ensure that the Charter is updated to take new legal requirements and best practices into account and co-ordinate an annual review of the charter and report to the Audit Committee on its performance against the Charter during the year.
Audit Committee Charter
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RESULTS OF THE WORK OF AGOOD AUDIT COMMITTEEThe board makes properly informed decisions regarding:
Accounting policies Accounting Practices Risk management and Disclosure
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Audit CommitteeLeadership
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Who is on your Committee?Who is on your Committee?
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Audit Committee Composition
The members must be: Non-executive with a majority being independent and
At least one of the three independent directors must be
a qualified accountant.
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7 Attributes of Effective Audit Committee Members
1. Key is good understanding of the business — including company’s products, services, and industry
2. Willingness to dedicate substantial time and energy
3. Good financial knowledge4. Willingness to attend regular
training
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7Attributes of Effective Audit Committee Members (Cont’d)
5. Extremely high level of integrity6. Healthy skepticism and courage to
challenge7. Inquisitiveness and independent
judgment
Sarbanes-Oxley and the Future of The Audit Committee
Sarbanes-Oxley is the most significant legislation pertaining to financial reporting, and auditing, since the establishment of the Securities and Exchange Commission (SEC) in the 1930s.
The act has had an observable impact on business, one example of which is the increase in financial expertise on audit committees.
An enhanced partnership is now required between external auditors, internal auditors, and audit committees.
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2.0 Challenges of the Audit Committee –
20 Leadership Questions
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Asking the Right Questions?
“Better to have an approximate answer to the right question, than an
exact answer to the wrong question.”
Statistician - John W. Tucker
“Better to have an approximate answer to the right question, than an
exact answer to the wrong question.”
Statistician - John W. Tucker
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A. Evaluation Effectiveness
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B. Stress Management
C. Allocation of Responsibilities & Role Engagement
D. Information, Training & Decision Making
20 Questions - 4 Categories20 Questions - 4 Categories
A. Evaluation Effectiveness
1. How satisfied are you with your current
evaluation process?
2. How can the external auditor add the most
value to your assessment process?
3. Should individual members be evaluated?
4. Does feedback from the audit committee
assessment lead to changes in behaviour,
process or both? 25
A. Evaluation Effectiveness (cont’d)5. As audit committee chair, how much
additional time do you spend on committee business compared with other audit committee members?
6. How do you coordinate with internal and external audit, members of the finance organization or other board members in advance of audit committee meetings?
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7. What pressures is your audit committee under from various stakeholders?
8. How is this affecting your audit committee agenda and how you approach your work?
9. Have we reached a point where audit committee over-reach is itself a risk?
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B. Stress Management
C. Allocation of Responsibilities & Role Engagement
10. What makes for an effective and engaged audit committee member?
11.How does your Board allocate responsibilities to the audit committee and other committees of the Board?
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Allocation of Responsibilities & Role Engagement (cont’d)
12. Have there been any major changes in allocation between committees or between a committee and the full Board?
13. What role can the audit chair play in making sure committee members stay engaged?
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D. Information, Training & Decision Making14. How do you determine what
information should be provided to the audit committee?
15.Who else is involved in that decision and how do you work with management to refine information for the audit committee?
16.What is the most effective way to deliver audit committee technical education?
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17. What techniques do you find most useful for chairing efficient audit committee meetings?
18. What is a good balance between presentation and discussion?
19. How can you create space for more discussion of topical issues?
D. Information, Training & Decision Making (Cont’d)
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3.0 The Key Recommendation for
Adding Value - Quality Evaluation
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Quality Evaluations 1. Evaluate committee performance regularly by
comparing activities againsti. Charterii. Leading practice
2. Assess committee dynamics, not only on what the committee does, but also on how effectively it functions
3. Evaluations should be robust - not simply a “check the box” exercise
4. Obtain feedback from board, management, internal audit, general counsel, and external auditors
Thank You For Your Attention
Please Continue Your Improvement Processes
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