Audit Committee v. Revision CommissionAudit Committee v. Revision Commission

OECD/EBRD Conference on Corporate Governance of Banks in Eurasia

Charles T. CanfieldSenior Corporate Governance Officer International Finance Corporation

April 30, 2008

London, England

An Audit Committee

is not =

a Revision Commission!!!

DefinitionsDefinitions

• Audit Committee

• Revision Commission, aka “audit committee” and or “audit commission”

Definition Definition -- Audit CommitteeAudit Committee

A Body formed by a company's supervisory board (board of directors) to oversee audit operations and circumstances. It selects and appraises the performance of the external auditor. In accordance with most jurisdictions, the Audit Committee must be composed of outside directors. Besides evaluating external audit reports, the Committee should oversee the internal audit function and should be involved with public disclosure of corporate activities. Often referred to as Audit Committee of the Supervisory Board

(Adapted from the Business Encyclopedia)

Definition Definition –– Revision CommissionRevision Commission

1. A body elected by the shareholders to control the operations and financial activities of the company. (Azerbaijan CC)

2. A body elected by the shareholders that exercises control over financial and business activity. (Ukraine LOB)

3. Shareholders' body responsible for control over the commercial (financial) activity of management. (Ukraine company law)

4. Every Bank shall have an Audit Commission . . . Appointed by the AGM, of which no member shall be a member of the Supervisory Council of Management Board. (Law of GE on Activities of Commercial Banks)

Origins Origins –– Audit CommitteeAudit Committee

• 1940 - The SEC recommended the establishment of audit committees (the SEC recommended that shareholders elect the auditors at annual meetings and a committee of non-officer directors nominate the auditors. The NYSE had a similar recommendation.

• 1967 - The AICPA recommended that publicly held corporations establish AC to nominate the auditors and discuss the audit.

• 1977 - NYSE required each domestic corporation to establish and maintain an AC of outside directors.

• 1999 Following recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, SEC requires registrants to disclose information about AC composition and practices

Origins Origins –– Revision CommissionRevision Commission

• Asia

• FSU

CompositionComposition

Audit Committee

• Members drawn from SB

• Independent

• “Financially literate”

• Leader should be a “financial expert”

• Non-affiliated with the company

• Compensated

Revision Commission

• Bank law, e.g. “Administrators”

• Remuneration/salary determined by AGM

Role and ResponsibilitiesRole and Responsibilities

Audit Committee

• Financial Reporting and Disclosure

• Corporate Governance

• Internal Control and Risk Management

• Compliance and Ethics

• Oversee IA

Revision Commission

• Operational control over financial activity

• Emerging AC functions

EffectivenessEffectiveness

Audit Committee

• Quarterly meetings

• Qualified members

• Committee of SB

Revision Commission

• meets once a year

• not qualified enough

• removed from executive body

• does not receive timely and relevant info

• formality

Why have an Audit Committee?Why have an Audit Committee?

Revision Commission:

formal and ineffective

Supervisory Board:

lack of time and qualification

Management Board:

conflict of interest

RC in the FSURC in the FSU

NoYesUzbekistan

NoYesUkraine

No*YesTurkmenistan

YesYesTajikistan

NoYesRussia

NoYesMoldova

YesNoLithuania

YesNoLatvia

NoYesKyrgyzstan

No*NoKazakhstan

Yes*YesGeorgia

YesNoEstonia

NoYesBelarus

YesYesAzerbaijan

No*YesArmenia

ACRCCountry

ConclusionConclusion

• The time has come to retire the revision commission

• Audit Committees are the better vehicle to help develop private enterprises

• An AC is key to good CG

Thank you for

your attention!