CFFR, the World Bank Improving Audit Committee Effectiveness: A European Perspective

Transcription

1 CFFR, the World Bank Improving Audit Committee Effectiveness: A European Perspective BUCHAREST, 6 June 2013 Hilde Blomme FEE Deputy CEO 1 Standing Standing for trust for trust and and integrity

2 1. What is FEE? 2. The legal basis for audit committees within the European Union: the Statutory Audit Directive 3. FEE analysis on The establishment of audit committees Agenda The composition of the audit committee, including independence and compensation, Responsibilities and tasks of audit committee members Reporting from and to the audit committee 2

3 What is FEE? 3

4 Federating the European Profession 45 professional institutes of accountants 33 European countries, including all 27 EU professionals incl. all sections of the profession: large, medium, small practices, business, public sector 4

5 Discussion Paper published in June 2012 The functioning of audit committees Includes: - A survey on the functioning of audit committees in EU Member States - FEE recommendations 5

6 Other recent FEE initiatives Brussels Dinner Debate with audit committee members February 2013 Roundtable (100 attendees) followed by a Publication of Highlights of this event February 2013 Joint publication with the Institute of Chartered Accountants in Australia (ICAA) and the Center for Audit Quality in the United States (US CAQ) - April

7 The EU legal basis : The Statutory Audit Directive (in the process of being revised) 7

8 EU legal basis Main highlights (1/2) 1. Article 41 of the Statutory Audit Directive (being revised) Each Public Interest Entity (PIE) shall have an audit committee Composition up to EU Member States Non-executive members of the administrative body and/or members of the supervisory body and/or members appointed by the general meeting of shareholders At least, one independent member and with competence in accounting and/or auditing 8

9 EU legal basis Main highlights (2/2) The audit committee s tasks Monitor the financial reporting process Monitor the effectiveness of the company s internal control, internal audit and risk management systems Monitor the statutory audit Review and monitor the independence of the auditor, especially the provision of non audit services The audit committee shall Make a recommendation to the Board for the appointment of the auditor The EC Recommendation (Feb 2005) on «The role of non- executive directors of listed companies and on the committees of the (supervisory) board» 9

10 Establishment of the Audit Committee 10

11 Establishment of audit committees (1/2) At EU level, each PIE should have an audit committee Member states may Exempt some PIEs Allow the Board itself to perform the tasks assigned to the audit committee 11

12 Establishment of audit committees (2/2) FEE survey outcome FEE recommends Clarification that the audit committee acts as a (stand-alone) subcommittee of the board 12

13 Composition of the Audit Committees 13

14 At EU level Composition of audit committees, incl. Independence & Compensation (1/4) the Statutory Audit Directive leaves room to Member States to decide The EC Recommendation provides further guidance, especially on The internal organisation of the audit committee The appointment of the Chair Rotation or reconfirmation of members position The EC Recommendation does unfortunately not provide guidance on Compensation, Remuneration Policy and Liability aspects 14

15 Composition of audit committees, incl. Independence & Compensation (2/4) FEE survey outcome In Romania? On appointment of members of the audit committee: most often by the Board, sometimes by the shareholders By the Board On the appointment of the Chair of the audit committee: most often not determined how, sometimes the Chair of the Board and of the audit committee should be different On the number of audit committee members: often minimum 3, sometimes 2 or not determined No specification Minimum 2 15

16 Composition of audit committees, incl. Independence & Compensation (3/4) FEE survey outcome In 7 EU Member States, independence requirements meet the EC Recommendation criteria In 14 EU Member States, they are above 16

17 Composition of audit committees, incl. Independence & Compensation (4/4) FEE recommends All members should be non-executive directors (no CEO or CFO) A majority of members should be independent, incl. the Chair Need of appropriate competences and skills to collectively assume audit committee responsibilities & tasks Appropriate compensation needed to be able to require liability engagement Diversity re gender, age, background ethnicity, : following principle best person for the job 17

18 Responsibilities and tasks of the Audit Committee 18

19 Responsibilities & tasks of the audit committee (1/4) At EU level The Statutory Audit Directive requires Monitoring of the financial reporting process, effectiveness of internal control, the work and independence of the external auditor with sufficient professional scepticism The EC Recommendation provides further guidance on Development of Terms of Reference Yearly self-assessment Evaluation of the board with transparency 19

20 Responsibilities & tasks of the audit committee (2/4) The EC proposal would require A pre-approval of some non-audit services by the audit committee A strengthening of the involvement of the audit committee in the selection and the appointment of the statutory auditor A reinforcement of the evaluation of the internal control and risk management functions Further elaboration of the self-assessment procedure of the audit committee 20

21 Responsibilities & tasks of the audit committee (3/4) FEE survey outcome Most EU Member States require/recommend Terms of Reference In most EU Member States, the audit committee has the role of advisor rather than having decision-making power In some countries Assessment of non audit services to be provided Involvement in the process of auditor s appointment In Romania, no specific regulation re Terms of Reference for detailed responsibilities, BUT Bucharest Stock Exchange Corporate Governance Code recommends auditor s independence monitoring, regular meetings with auditors etc. 21

22 Responsibilities & tasks of the audit committee (4/4) FEE recommends Clarification of responsibilities of board committees Extended Terms of Reference with insights into involvement s expectations and time commitment for audit committee members Guidance for delegation of powers between the board and the audit committee Reinforcement of the audit committee s evaluation of efficiency and effectiveness of internal control and risk management functions Regular assessment of The cooperation with the external auditor Self-assessment and potential improvements 22

23 Reporting from and to the Audit Committee 23

24 At EU level Reporting from and to the audit committee (1/3) the Statutory Audit Directive leaves room to Member States to decide The EC Recommendation provides further guidance on Involvement in the relevant stages of reporting to and from the company as a whole Reporting to the board on its activities every 6 months Terms of Reference to be made public The EC Proposal includes Submission of an additional internal report re the audit from the statutory auditor to the audit committee No further requirements re public reporting from the audit committee to third parties 24

25 Reporting from and to the audit committee (2/3) FEE survey outcome Mostly, written and oral reports are internal to the Board In some countries (i.e. Germany) the communication is very formalised and descriptive (i.e. long form report) Few countries provide requirements re reporting irregularities and whistle blowing procedures In general, lack of information re public reporting from the audit committee to third parties In Romania, no specifics on reporting including on whistle blowing procedures for reporting irregularities except to the Board 25

26 Reporting from and to the audit FEE recommends committee (3/3) High-quality information from the internal audit and management to support the audit committee Enhanced communication between the auditor and the audit committee : the Additional Internal Report (included in the EC proposal) Increase in public transparency by the audit committee Judgements and conclusions in relation to Key accounting policies Internal control and risk management Work carried out in relation to issues arising in the course of the audit Involvement in the provision of non-audit services by the auditor and in auditor appointment 26

27 Conclusions Building well-functioning audit committees is work in progress in many EU Member States Significant potential to play a key role for audit committees in effective corporate governance and in enhanced financial reporting/auditing of companies Further developments needed, for instance related to Reporting by audit committees to third parties Linkage between responsibilities / liability / compensation of audit committee members EU to focus on audit committees in the wider sense, not just from the statutory audit perspective 27

28 Questions? 28

29 Visit 29