audit committee v. revision commission · audit committee v. revision commission oecd/ebrd...
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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
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An Audit Committee
is not =
a Revision Commission!!!
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DefinitionsDefinitions
• Audit Committee
• Revision Commission, aka “audit committee” and or “audit commission”
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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)
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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)
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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
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Origins Origins –– Revision CommissionRevision Commission
• Asia
• FSU
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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
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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
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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
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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
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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
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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
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Thank you for
your attention!