Committee Charter: The Role and Responsibilities of the Audit Committee

Transcription

1 Committee Charter: The Role and Responsibilities of the Audit Committee Audit & Compliance Committee Conference February 11-13, 13, 2008 Debbie Angus, CPA Vice President, Audit

2 Today s Discussion Background/Environment Need for Audit Committees Key Elements of an Effective Committee Audit Committee Charter; how we implement and achieve the role and responsibilities of the Audit Committee 2

3 Understand the Changing Governance Culture Corporate scandals/wave of financial reporting and accounting irregularities have altered the corporate governance playing field. Governance A whole new ballgame (perspective) Beginning to take responsibility seriously Heightened awareness and expectations of stakeholders Objectivity and trust need to be restored Difference from Management 3

4 Understand the Changing Governance Culture Less tolerant, more direct Responsibilities have expanded significantly in recent years Better understanding of Audit Committee members of Roles and Responsibilities Today s governance arena requires Boards and Committees to be proactive, informed and accountable 4

5 Evolution of Boards Ceremonial performed a compliance role directors served for the prestige CEO ran the show did not understand roles and responsibilities. Liberated post Sarbanes-Oxley contributions expected directors still play to their own strengths individually, not as a collective body do understand roles and responsibilities. Progressive ensure success of company comply with letter of law reflect boards viewpoint, not a collection of opinions from individual directors understand as a group roles and responsibilities. 5

6 Areas of Responsibility Delegated to the Audit Committee Past Audit Committee External Audit 6

7 Areas of Responsibility Delegated to the Audit Committee Today Audit Committee Risk Assessment: Identification and Control Financial Reporting Process Effectiveness of Internal Controls Audit Functions: Internal External Compliance Program 7

8 Need for Audit Committees Even the largest, most highly regarded companies can fall prone to financial challenges Fulfills a vital role in Corporate Governance A critical component in ensuring quality reporting and controls, and the identification and management of risk 8

9 Need for Audit Committees Assists Board in their oversight of financial reporting, risk management, compliance and the audit functions Better informed Board Demonstrates Board s commitment to due care Not practical for Board or Finance Committee to serve in oversight capacity due to time and resource constraints Enhances tone at the top by devoting focused attention and providing oversight 9

10 Need for Audit Committees Reduces organizations vulnerability to financial reporting and compliance risks Enhances external and internal audit functions by monitoring independence and promoting open communication Increases management s diligence in internal controls and appropriate reporting practices Best practice among public companies Requirement of SEC, NYSE, NASDAQ, and Sarbanes- Oxley Act 10

11 Effective Audit Committee Qualifications of Members Independent of Management Financially literate Financial expert High integrity, accountability and informed judgment Consider the collective experience of committee members 11

12 Effective Audit Committee Qualifications of Audit Committee Chair Proactive leader Strong financial literacy skills Skeptical eyes/ears Communication skills that facilitate dialogue with management, the auditors and the Board 12

13 Effective Audit Committee Committee Size At least three members, but no more than six Key is to facilitate good discussion and inquiry by the Committee Enough to provide a variety of skills and experiences 13

14 Effective Audit Committee Resources Need Right information Access to experts Access to Auditors Right amount of time Continuing education Ask incisive, probing questions Risk Management Financial Reporting\ Internal Controls Internal Audit External Audit Compliance 14

15 Effective Audit Committee Meetings Meet as frequently as needed to perform role (generally 3-4 times per year) Time allotted reasonably free of constraints Meet with internal auditors, external auditors, other directors, and management as needed to define/understand committee expectations Consider inviting other interested parties to attend meeting based on nature of agenda Executive sessions with internal and external auditors, and Compliance Officer 15

16 Effective Audit Committee Relationships Establish trusting yet responsible and workable relationships with relevant parties Complete support of CEO and Senior Management necessary Work with other Board Committees as governance and business needs dictate 16

17 Effective Audit Committee Responsibilities Monitoring the Reporting Function Assess internal/external reporting objectives Understand quality of earnings Review annual financial statements including significant accounting judgments and estimates Consider receiving written representation from management re conformity of financial statements with generally accepted accounting principles 17

18 Effective Audit Committee Responsibilities Monitoring Risk Management Ensure evaluation of the risks faced by the organization Assess internal control objectives and whether they have been met Encourage a tone at the top that conveys ethical integrity as well as legal compliance and strong financial reporting and control Receive risk assessments from the internal and external auditors 18

19 Effective Audit Committee Responsibilities Monitoring the Audit Function Review/approve internal audit charter Evaluate the objectivity of internal audit Recommend selection, retention, dismissal of external auditors Evaluate the objectivity of external audit Review scope and results of external audit activities Receive/review results of significant regulatory audits Review management s responses and follow up to regulatory audits Ensure open/candid discussions with auditors 19

20 Effective Audit Committee Self Assessment Evaluate performance of individual Committee Members and Committee Chair Evaluate overall performance of Committee as a whole 20

21 Audit Committee Charter Approved by Board of Directors Road Map to track and achieve complete Roles and Responsibilities of Audit Committee delegated from Board Includes structure, processes and membership requirements Free and open communication between Board of Directors and internal auditors, external auditors, compliance officer and senior management 21

22 Audit Committee Charter Key for Charter is utility, not length Review and re-assess adequacy of Charter on an annual basis Use as a self-assessment tool Make the Charter a living document and use it to manage the agenda 22

23 DISCUSSION 23