org pro of auditing

8/8/2019 Org Pro of Auditing

1/29


2/29

Purpose of an Ethics Audit:

The primary purpose of an ethics audit is to provide social

workers with a practical way to:

Identify pertinent ethical issues in their practice settings. What specific

ethical risks do social workers face? Are there ethical issues that arise in

the work that are unique to the client population, treatment approach,

setting, program design, or staffing pattern?

Review and assess the adequacy of their current practices. Has the

practice setting addressed compelling ethical issues? How adequate are the

current practices, policies, and procedures? What issues need to be

addressed?

Design a practical strategy to modify current practices as needed. What

steps does the agency or practice need to take to protect clients, prevent

disgruntled parties from filing ethics complaints with state licensing boards

and professional organizations, and prevent ethics-related lawsuits? Who

in the practice or agency should work to address these issues? What

resources will they need? What timetable should they follow?

Monitor the implementation of this quality assurance strategy. How can

practitioners ensure that the implementation plan has been implemented

effectively? What indicators can staff members use to assess the extent to

which the audit goals have been met?

Steps in an Ethics Audit:

Conducting an ethics audit involves several key steps:

1. In agency settings, a staff member should assume the role of chair of the

ethics audit committee. Members should be appointed to the committee


3/29

based on their demonstrated interest in the agencys ethics-related policies,

practices, and procedures. Ideally, the chair would have obtained formal

education or training related to professional ethics. Independent

practitioners may want to consult with knowledgeable colleagues or a peerconsultation group.

2. The audit committee should identify specific ethics -related issues on

which to focus. In some settings, the committee may decide to conduct a

comprehensive ethics audit. In other agencies, the committee may focus on

specific ethical issues that are especially important in those settings.

3. The ethics audit committee should decide what kind of information it

will need to conduct the audit. Data may be gathered from documents (eg,

informed consent forms, confidentiality guidelines, client rights

statements) and interviews conducted with agency staff that address

specific ethical issues. The committee should also review relevant codes of

ethics and federal and state statutes and regulations.

4. Once the necessary data are gathered and reviewed, the audit committee

should assess the risk level associated with each issue. Each issue should be

assessed with respect to relevant agency policies and the procedures

staffers follow. Policies may be codified in formal ag ency documents or

memoranda. Procedures entail social workers actual handling of ethical

issues in their relationships with clients, colleagues, and third parties. Each

topic should be assigned one of four risk categories: no risk (current

practices are acceptable); minimal risk (current practices are reasonablyadequate; minor modifications would be useful); moderate risk (current

practices are problematic; modifications are necessary to minimize risk);

and high risk (current practices are seriously flawed; significant

modifications are necessary to minimize risk).


4/29

5. Once an ethics audit has been completed, social workers need to take

steps to make use of its findings. Social workers should develop an action

plan for each risk area that warrants attention, beginning with high-risk

issues, then moving on to moderate- and minimal-risk issues. The actionplans should spell out specific measures that need to be taken to address

the identified problem areas. Examples include updating confidentiality

policies to reflect current laws and code of ethics standards, revising

informed consent procedures and forms, and developing dual-relationship

and conflict-of-interest guidelines.

6. The committee should identify which staff will be responsible for the

various tasks and establish a timetable for completion of each and a

mechanism to follow up on each task to ensure its completion and monitor

its implementation.

7. The committee should document the complete audit process to

demonstrate its good-faith effort to assess ethics-related policies and

procedures. This documentation may be helpful in the event that someone

raises questions about the adequacy of the agencys ethics -related

practices.

ROLE OF PROFESSIONAL ACCOUNTANTS IN

SOCIETY:

As an organized profession, we need to know clearly where we

stand and where we want to go. We need to understand our present, our

current situation as professional accountants, and we need to analyze the

context, so that we are able to face the future with the right understanding

and the proper tools. First objective is the sustainability of the profession,

in a broad sense, and through that sustainability, to achieve a more efficient

collaboration in the integral development of our societies.


5/29

Professional accountants here in India , and around the world are

living in challenging times that obligate us to put all of our energy, talents

and resources in motion. I believe we are doing this and doing it well. The

world permanently needs and seeks our answers to the ongoing challengesit faces, and it is our role to both anticipate and help it meet those

challenges. In so doing, we demonstrate our value and enhance the

professions sustainability.

Professional accountants play an essential role in society, providing

reliable and transparent information, both in the public sector and in the

private one. The accountancy profession facilitates and makes economic

activity possible at any level. And it does this in a way that protects the

public interest, serves the common good and contributes to the integral

development of the society. The accountancy profession is also essential to

supporting economic and social policies and to assisting in their best

implementation.

Corruption is one of the largest obstacles to development. If the

accounting profession is committed to development, then it should commit

itself to combat corruption. Corruption is developments worst enemy. It

hampers any form of economic growth. Corruption affects the economies of

all countries. Those most likely to suffer the most, however, are developing

and emerging economies.

The accountancy profession is but one of many elements that must

participate in the fight against corruption. Nevertheless, if the profession

can demonstrate its own commitment, it can very effectively demand

participation by the other groups, whether they are other professions,

governments, regulators or other private sector organizations.


6/29

Features:

y Provision of important fiduciary services to society

y

Extensive knowledge and skill are required

y Training and skills required are largely intellectual

y Overseen by self-regulating membership organisations

y Accountable to governmental authority

Duties:

y Continuing attention to the needs of clients and other stakeholders

y Development & maintenance of required knowledge & skills

y Maintenance of the trust inherent in a fiduciary relationship by

behaviour exhibiting responsible values

y Maintenance of an acceptable personal reputation

y Maintenance of a credible reputation as a profession

Rights:

y Ability to hold oneself out as a designated professional to render

important fiduciary services

y

Ability to set entrance standards and examine candidates

y Self-regulation and discipline based on codes of conduct

y Participation in the development of accounting & audit practice

y Access to some or all fields of accounting & audit endeavour


7/29

Values necessary to discharge duties & maintain rights:

y Honesty & Integrity (i.e. truth & the whole truth)

y

Objectivity - based on independent judgement

y Desire to exercise due care

y Competence

y Confidentiality

y Commitment to place the needs of the public, the client, the

profession, and the employer or firm before the professional's own

self-interest .

ROLE OF AUDITORS IN A COMPANY:

In financial accounting, an audit is categorized by the independent

assessment of the justice by which a company's financial statements are

prepared and presented to and by its management. This task is mainly

performed by the skilled, competent, independent and objective persons,

known as accountants or auditors. Auditors are on the whole very

knowledgeable with every aspect of auditing and they in turn issue a report

known as auditors report. There are mainly two types of auditors:

External Auditors: These auditors are called from outside the company to

access and evaluate financial statements of their clients or to performnecessary evaluation than required. They are mostly employ ed for a period

of 1 year.


8/29

Internal Auditors: These are the company hired employees to access and

evaluate the internal control required by the company. They report directly

to BODs or the top management. They are responsible to have a through

view related to the frauds and mishappenings that exists in a company.

CODE OF ETHICS FOR CHARTERED

ACCOUNTANTS:

Financial statements of an enterprise depict the wholesome

financial situation of the enterprise for a particular period / at a particular

date. The information in these statements are of vital importance for a large

section of the society, which deal with that enterprise.

Keeping in view the importance of these statements and the large

section of the society who use these statements for taking many vital

decisions, it is necessary that these statements are attested by some person

who is expert in this field so that the objectivity, integrity, reliability and

credibility of the information is assured to a large extent. This function of

attestation is done by professional accountants, who are Chartered

Accountants in our country.

A client, before engaging the services of a professional requires to

be assured, (i) that he has the required competence and (ii) that he is a

person of character and integrity.

Objectives:

The Code recognizes that the objectives of the accountancy

profession are to work to the highest standards of professionalism, to

attain the highest levels of performance and generally to meet the public

interest requirement set out above.


9/29

Fundamental principles:The fundamental principles are :-

Integrity : A professional accountant should be straightforward and

honest in performing professional services.

Objectivity : A professional accountant should be fair and should not allow

prejudice or bias, conflict of interest or influence of others to override

objectivity.

Professional Competence and Due Care : A professional accountant

should perform professional services with due care, competence and

diligence and has a continuing duty to maintain professional knowledge

and skill at a level required to ensure that a client or employer receives the

advantage of competent professional service based on up-to-date

developments in practice, legislation and techniques .

Confidentiality : A professional accountant should respect the

confidentiality of information acquired during the course of performing

professional services and should not use or disclose any such information

without proper and specific authority or unless there is a legal or

professional right or duty to disclose.

Professional Behaviour : A professional accountant should act in a

manner consistent with the good reputation of the profession and refrain

from any conduct which might bring discredit to the profession. The

obligation to refrain from any conduct which might bring discredit to the

profession requires IFAC member bodies to consider, when developing

ethical requirements, the responsibilities of a professional accountant to

clients, third parties, other members of the accountancy profession, staff,

employers and the general public.


10/29

Technical Standards: A professional accountant should carry out

professional services in accordance with the relevant technical and

professional standards. Professional accountants have a duty to carry out

with care and skill, the instructions of the client or employer in-so-far as

they are compatible with the requirements of integrity, objectivity and in

the case of professional accountants in public practice, independence.

How Ethical Auditing helps companies work effectively?

Actions are dictated by values. Identifying organisational values -

both proclaimed and actual - will assist a company to ensure that all its

actions are commensurate with these values, and enable it to put in place a

robust structure to support the operationalisation of the values. The value

of the ethical audit is that it enables the company to see itself through a

variety of lenses: it captures the company's ethical profile. Companies

recognise the importance of their financial profile for their investors, of

their service profile for their customers, and of their profile as an employer

for their current and potential employees. An ethical profile brings together

all of the factors which affect a company's reputation, by examining the

way in which it does business. By taking a picture of the value system at a

given point in time, it can:

y clarify the actual values to which the company operates

y provide a baseline by which to measure future improvement

y

learn how to meet any societal expectations which are not currentlybeing met

y give stakeholders the opportunity to clarify their expectations of the

company's behavior

y identify specific problem areas within the company


11/29

y learn about the issues which motivate employees

y identify general areas of vulnerability, particularly related to lack of

openness

International business: Multinational companies face special issues

in relation to ethical auditing. It is, though, precisely these special issues

which can make ethical auditing so valuable to multinationals. One of the

issues which most concerns multinationals is that of corruption - how to do

business in countries where backhanders are expected in the common

course of events.

Consumer power: Ethical auditing enables companies to better

comprehend these relationships. All relationships are based on values such

as trust and an expectation of fair dealing - understanding these dynamics

and finding out where expectations and perceptions differ give a company

a head start

Conclusion: The findings of the audit give a snapshot, a view at a

particular point in time, of the company's ethics. In the case of a first audit,

they will necessarily be of less value for comparison purposes than would

future audits, but they ought to give a clear picture of both values and

vulnerabilities. An audit report is a factual document. Obviously it reaches a

judgement, but it is not intended to be judgmental, in the sense of

condemning a company for moral failure. We believe that ethical audit will

have particular benefits for multinational companies, but it could also be of

great value in take-over and merger situations, especially ones which

involve partners from different countries where there may be conflicting

value systems. Other benefits include enhanced corporate reputation,


12/29

making the company fraud resistant, and improving staff morale and

motivation.

APPOINTMENT AND REMUNERATION OF

AUDITORS:

(1) Every company shall, at each annual general meeting, appoint

an auditor or auditors to hold office from the conclusion of that

meeting until the conclusion of the next annual general meeting and

shall, within seven days of the appointment, give intimation thereof

to every auditor so appointed

(2) Provided that before any appointment or re-appointment of

auditor or auditors is made by any company at any annual general

meeting a written certificate shall be obtained by the company from

the auditor or auditors proposed to be so appointed to the effect that

the appointment or re-appointment, if made, will be in accordance

with the limits specified in sub-section :

y Every auditor appointed under sub-section (1), shall within thirty

days of the receipt from the company of the intimation of his

appointment, inform the Registrar in writing that he has accepted or

refused to accept, the appointment.

y (1B) On and from the financial year next following the

commencement of theC

ompanies (Amendment) Act, 1974, nocompany or its Board of directors shall appoint or re-appoint any

person ,who is in full-time employment elsewhere] or firm as its

auditor if such person or firm is, at the date of such appointment or

re-appointment, holding appointment as auditor of the specified


13/29

number of companies or more than the specified number of

companies

y Provided that in the case of a firm of auditors "specified number of

companies" shall be construed as the number of companies specified

for every partner of the firm who is not in full-time employment

elsewhere

y Provided further that where any partner of the firm is also a partner

of any other firm or firms of auditors, the number of companies

which may be taken into account, by all the firms together, in relation

to such partner shall not exceed the specified number in the

aggregate:

y Provided also that the provisions of this sub-section shall not apply,

on and after the commencement of the Companies (Amendment) Act,

2000, to a private company.

(1C) For the purposes of enabling a company to comply with the

provisions of sub-section (1B), a person or firm holding, immediately

before the commencement of the Companies (Amendment) Act, 1974,

appointment as the auditor of a number of companies exceeding the

specified number, shall, within sixty days from such commencement,

intimate his or its unwillingness to be re-appointed as the auditor from the

financial year next following such commencement, to the company or

companies of which he or it is not willing to be re-appointed as the auditor;

and shall simultaneously intimate to the Registrar the names of the

companies of which he or it is willing to be reappointed as the auditor and

forward a copy of the intimation to each of the companies referred to

therein.


14/29

Explanation I.-For the purposes of sub-sections (1B) and (1C), "specified

number" means,-

(a) in the case of a person or firm holding appointment as auditor of a

number of companies each of which has a paid-up share capital of less than

rupees twenty-five lakh, twenty such companies;

(b) in any other case twenty companies, out of which not more than ten

shall be companies each of which has a paid-up share capital of rupees

twenty-five or more

Explanation II.-In computing the specified number, the number of

companies in respect of which or any part of which any person or firm has

been appointed as an auditor, whether singly or in combination with any

other person or firm, shall be taken into account.

(2)Subject to the provisions of sub-section (1B) and section 224A at any

annual general meeting,] a retiring auditor, by whatsoever authority

appointed, shall be re-appointed, unless-

(a) he is not qualified for re-appointment;

(b) he has given the company notice in writing of his unwillingness to be

re-appointed;

(c) a resolution has been passed at that meeting appointing somebody

instead of him or providing expressly that he shall not be re-appointed; or


15/29

(d) where notice has been given of an intended resolution to appoint some

person or persons in the place of a retiring auditor, and by reason of the

death, incapacity or disqualification of that person or of all those persons,

as the case may be, the resolution cannot be proceeded with.

(3) Where at an annual general meeting no auditors are appointed or re-

appointed, the Central Government may appoint a person to fill the

vacancy.

(4) The company shall, within seven days of the Central Government's

power under sub-section (3), becoming exercisable, give notice of that fact

to that Government; and, if a company fails to give such notice, the

company, and every officer of the company who is in default, shall be

punishable with fine which my extend to [five thousand rupees].

(5) The first auditor or auditors of a company shall be appointed by the

Board of directors within one month of the date of registration of the

company; and the auditor or auditors so appointed shall hold offices until

the conclusion of the first annual general meeting:

Provided that-(a) the company may, at a general meeting, remove any such

auditor or all or any of such auditors and appoint in his or their places any

other person or persons who have been nominated for appointment by any

member of the company and of whose nomination notice has been given to

the members of the company not less than fourteen days before the date ofthe meeting; and

(b) if the Board fails to exercise its powers under this sub-section, the

company in general meeting may appoint the first auditor or auditors.


16/29

(6) (a) The Board may fill any casual vacancy in the office of an auditor; but

while any such vacancy continues, the remaining auditor or auditors, if any,

may act:

Provided where such vacancy is caused by the resignation of an auditor, the

vacancy shall only be filled by the company in general meeting.

(b) Any auditor appointed in a casual vacancy shall hold office until the

conclusion of the next annual general meeting.

(7) Except as provided in the proviso to sub-section (5), any auditor

appointed under this section may be removed from office before the expiry

of his term only by the company in general meeting, after obtaining the

previous approval of the Central Government in that behalf.

(8) The remuneration of the auditors of a company-

(a) in the case of an auditor appointed by the Board or the Central

Government, may be fixed by the Board or the Central Government, as the

case may be; and

[(aa) in the case of an auditor appointed under section 619 by the

Comptroller and Auditor-General of India, shall be fixed by the company in

general meeting or in such manner as the company in general meeting may

determine;]

(b) subject to clause (a), shall be fixed by the company in general meeting

or in such manner as the company in general meeting may deter mine.


17/29

CORPORATE GOVERNANCE:

Definition:

The modern definition calls it the framework of rules andpractices by which a board of directors ensures accountability, fairness,

and transparency in the firm's relationship with its all stakeholders

(financiers, customers, management, employees, government, and the

community). This framework consists of explicit and implicit contracts

between the firm and the stakeholders for distribution of responsibilities,

rights, and rewards, procedures for reconciling the sometimes conflicting

interests of stakeholders in accordance with their duties, privileges, and

roles, and procedures for proper supervision, control, and information-

flows to serve as a system of checks-and-balances. Also called corporation

governance.

Meaning:

Corporate governance is the set of processes, customs, policies,

laws, and institutions affecting the way a corporation (or company) is

directed, administered or controlled. Corporate governance also includes

the relationships among the many stakeholders involved and the goals for

which the corporation is governed. The principal stakeholders are the

shareholders, the board of directors, employees, customers, creditors,

suppliers, and the community at large.

An important theme of corporate governance is to ensure the

accountability of certain individuals in an organization through

mechanisms that try to reduce or eliminate the principal-agent problem.


18/29

Most notably, India must reform how its boards of directors

function, improve its enforcement mechanisms, redefine its corporate laws,

and embrace corporate governance as a philosophy.

Why Corporate governance?

Investors primarily consider two variables before making

investment decisions--the rat Good corporate-governance practices reduce

this risk by ensuring transparency, accountability, and enforceability in the

marketplace. .While strong corporate-governance systems help ensure a

country's long-term success, weak systems often lead to serious problems.

e of return on invested capital and the risk associated with the investment.

While the presence of a good corporate-governance framework ensures

neither stability nor success, it is widely believed that corporate

governance can "raise efficiency and growth," especially for countries that

rely heavily on stock markets to raise capital.

In an open market, investors choose from a variety of investment

vehicles. The existence of a corporate-governance system is likely a part of

this decision-making process. Moreover, well-governed firms likely will

obtain capital more cheaply than firms that have poor corporate -

governance practices because investors will require a smaller "risk

premium" for investing in well-governed firms

Also, sound corporate-governance practices enable management to

allocate resources more efficiently, which increases the likelihood that

investors will obtain a higher rate of return on their investment. Finally,

leading indices show that developing countries that have good governance

structures consistently outperform developing countries with poor

corporate-governance structures. Thus, in an efficient capital market,


19/29

investors will invest in firms with better corporate-governance

frameworks because of the lower risks and the likelihood of higher returns.

Good corporate governance benefits developing countries in a

number of ways. According to at least one scholar, good corporate-

governance practices can decrease the "likelihood of a domestic financial

crisis and the severity if such a crisis does occur . Strong corporate

governance has beneficial consequences even for countries that choose to

follow a development strategy that does not focus on attracting foreign

investment. Good corporate governance can reduce this wasteful behavior

and, thus, "overcome the obstacles to productivity growth." Moreover,

corporate governance can play a role in reducing corruption, significantly

enhances a country's developmental prospects Ultimately, corporate

governance "is not just one of those imported western luxuries; it is a vital

imperative."

Corporate Governance Report:

Directors and managements must take upon themselves to

improve accountability by setting a tone at the top, honoring the

responsibilities that arise from the trust placed in them by investors. All

directors and managements should implement their own best practices for

corporate governance that promote integrity, transparency and

accountability."

Corporate governance is about commitment to values and ethical

business conduct. It is a set of laws, regulations, processes and customs

affecting the way a company is directed, administered, controlled or

managed. This includes its corporate and other structures, culture, policies

and the manner in which it deals with various stakeholders. Some of the


20/29

important best practices of corporate governance framework are timely

and accurate disclosure of information regarding the financial situation,

performance, ownership and governance of the Company.

The objectives of the committee are to strengthen the existing

appropriate code of ethics, values and corporate code of conduct for the

industry; emphasizing existing regulations and practices on corporate

governance and re-drafting and re-affirming appropriate code of ethics,

values and corporate code of conduct for the industry. The committee will

work with authorities, policy makers and regulators in the areas of

corporate governance and transparency.

Our corporate governance philosophy is based on the following principles:

Satisfy the spirit of the law and not just the letter of the law.

Corporate governance standards should go beyond the law

Be transparent and maintain a high degree of disclosure levels.

Make a clear distinction between personal conveniences and

corporate resources .

Communicate externally, in a truthful manner, about how the

Company is run internally .

Comply with the laws in all the countries in which we operate .

Have a simple and transparent corporate structure driven solely

by business needs .

Management is the trustee of the shareholders' capital and not

the owner.

Principles:

Key elements of good corporate governance principles include

honesty, trust and integrity, openness, performance orientation,


21/29

responsibility and accountability, mutual respect, and commitment to the

organization.

Of importance is how directors and management develop a model of

governance that aligns the values of the corporate participants and then

evaluate this model periodically for its effectiveness. In particular, senior

executives should conduct themselves honestly and ethically, especially

concerning actual or apparent conflicts of interest, and disclosure in

financial reports.

Commonly accepted principles of corporate governance include:

y Rights and equitable treatment of shareholders - Organizations

should respect the rights of shareholders and help shareholders to

exercise those rights. They can help shareholders exercise their

rights by effectively communicating information that is

understandable and accessible and encouraging shareholders to

participate in general meetings.

y Interestsofotherstakeholders-Organizations should recognize that

they have legal and other obligations to all legitimate stakeholders.

y Role and responsibilities of the board - The board needs a range of

skills and understanding to be able to deal with various business issues

and have the ability to review and challenge management performance.

y Integrity and ethical behavior - Ethical and responsible decision

making is not only important for public relations, but it is also a

necessary element in risk management and avoiding lawsuits.

Organizations should develop a code of conduct for their directors

and executives that promotes ethical and responsible decision


22/29

making. Because of this, many organizations establish Compliance

and Ethics Programs to minimize the risk.

y Disclosure andtransparency-They should implement procedures to

independently verify and safeguard the integrity of the company's

financial reporting. Disclosure of material matters concerning the

organization should be timely and balanced to ensure that all

investors have access to clear, factual information. Issues involving

corporate governance principles include:

internal controls and internal auditors

the independence of the entity's external auditors and the

quality of their audits

oversight and management of risk

oversight of the preparation of the entity's financial

statements

review of the compensation arrangements for the chief

executive officer and other senior executives

the resources made available to directors in carrying out their

duties

the way in which individuals are nominated for positions on

the board

dividend policy


23/29

AUDIT COMMITTEE:

An audit committees role is to assist the Board in fulfilling its

oversight responsibilities for the financial reporting process, the system ofinternal control over financial reporting, the audit process, and the

organisations process for monitoring compliance with laws and

regulations.

The AuditCommittee is composed of six Members, appointed by the

Board of Governors for a non-renewable term of office of six consecutive

financial years. The audit committee is established with the aim of

enhancing confidence in the integrity of an organisation's processes and

procedures relating to internal control and corporate reporting including

financial reporting.

Audit Committee Effectiveness:

Effective use ofauditcommittees forcorporate governance : The document

describes roles, powers, independence and competency of the audit

committee as important factors that influence the effectiveness of the

committee. It also emphasizes on the board of directors role in effectively

leveraging audit committee in the discharge of its oversight responsibility.

Effective functioningofthe auditcommittee atthistime ofglobalcrisis : Audit

committees could play a very vital role in improving the stakeholders

confidence and corporate governance by bringing out better internal

control systems, better monitoring and oversight, and better disclosures

and quality of internal and external reporting.

Role ofthe auditcommittee inensuringgoodcorporate governance inbanks :

The global financial crisis and recent incidents of corporate frauds have


24/29

brought into sharp focus the importance of the critical role to be played by

the audit committees in ensuring good corporate governance particularly

due to vulnerability of the economy to any turmoil in the financial system.

Assessi

ngauditcommittee effective

ness : The audit committee is seen as a

key fulcrum of any company. The responsibility for assessing effectiveness

of the audit committee is thus assuming more and more importance. This

document discusses some of the key factors in this regard.

Membership:

The AuditCommittee shall consist of at least three members. Audit

Committee members shall be appointed by the Board and may be removed

by the Board at any time. The Nominating and Corporate Governance

Committee shall recommend to the Board, and the Board shall designate,

the Chairman of the AuditCommittee.

No member of the Audit Committee may serve on the audit

committee of more than three public companies, including the Company,

unless the Board has determined that such simultaneous service.

Responsibilities:y Overseeing the financial reporting and disclosure

process.

y Monitoring choice of accounting policies and principles.

y Overseeing hiring, performance and independence of the

external auditors.

y Oversight of regulatory compliance, ethics, and

whistleblower hotlines.

y Monitoring the internal control process.

Features: Good audit committees will be characterised by:


25/29

y Strong chairmanship displaying a depth of skills and interest

y Unbiased attitudes - treating auditors, the executive and

management equally

y

The ability to challenge the Executive (leader/chief executive/mayoror whatever combination) when required

y A membership that is balanced, objective, independent of mind, and

knowledgeable.

Structure and Administration: Although no single model of

committee is prescribed, all should:

Be independent of the Executive and Scrutiny functions.

Have clear reporting lines and rights of access to other committee

/functions, for example scrutiny and service committees, corporate

risk management boards and other strategic groups.

Meet regularly at least four times a year with a quorum, and have a

clear policy on those items to be considered in private and those to

be considered in public.

Meet separately with the external auditor at least once a year.

Include, as regular attendees, the Responsible Finance Officer, Chief

Executive, Head of Internal Audit and Appointed External Auditor

and Relationship Manager. Other attendees may include the

Monitoring Officer (for standards issues) and the Head of Resources

(where such a post exists) The committee should have the right to

call any other officers or agencies of the council as required.

Be properly trained to fulfil their role

Conduct and ethics: The code of conduct should be developed with

management and staff and should cover such things as:


26/29

y principles of responsibilities and duties of Board members,

management and staff; and

y guidance for interpreting the principles.

Should we throw out the baby with the bath water?

y The obvious answer is no. Should we reduce the scope of work of the

audit committee? The selection should go through the same rigorous

process as in the appointment ofCEO. The company should provide

adequate resources to the chairman to enable her to perf orm her

duties.

y To enforce accountability of the chairman, Clause 49 requires that

she be present at the AGM to answer shareholder queries. The

mechanism for enforcing accountability exists in the extant

regulation. The initiative to enforce accountability should come from

institutional investors.

Importance: Audit committees should be composed solely of outside directors

(i.e., no members of management).

All members of the audit committee should be "financially literate"

and at least one member should have accounting or related financial

expertise. It is up to each board to define and set criteria for

"financial literacy".

Audit committees should adopt a formal written mandate that is

approved by the full board and that sets out the scope of the

committee's responsibilities.

Specifically, the audit committee needs to assure itself that:

the external auditors are independent from the corporation;


27/29

the external auditors are satisfied that the accounting estimates and

judgments made by management reflect an appropriate application

of GAAP; and

it has developed a relationship with the external auditors that allowsfor full, frank and timely disclosure of all material issues, with or

without management as appropriate in the circumstances.

Conclusion: The tasks, responsibilities, and goals of audit committees

and internal auditing are closely intertwined in many ways. Certainly, as

the magnitude of the "corporate accountability" issue increases, so does the

significance of the internal auditing/audit committee re lationship. The

audit committee has a major responsibility in assuring that the

mechanisms for corporate accountability are in place and functioning.

Clearly, one of these mechanisms is a solid, well-orchestrated, cooperative

relationship with internal auditing.


28/29


29/29

org pro of auditing

Documents