FINANCIAL DEBACLE:

WHERE WAS THE AUDIT COMMITTEE

BY
ADJ. PROF DATO’ SYED AMIN ALJEFFRI
EXECUTIVE CHAIRMAN

ALJEFFRIDEAN
CHARTERED ACCOUNTANTS

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 FINANCIAL DEBACLE: WHERE WAS THE AUDIT COMMITTEE?

 CORPORATE GOVERNANCE:
• “The process & structure used to direct & manage the
business & affairs of the company towards enhancing
business prosperity and corporate accountability with
the ultimate objective of realising long term
shareholder value, whilst taking into account the
interests of other stakeholders.”
(Report on Corporate Governance 1999)

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 FINANCIAL DEBACLE: WHERE WAS THE AUDIT COMMITTEE?

Elect Shareholders’
Shareholders
Auditors

Governance Elect
and
Nominating
Committee Elect

Board of Audit
Appoint
Directors Committee
Appoint
Human
Resources
and
Management Appoint
Compensation
Risk
Committee
Review
Committee

Management

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 FINANCIAL DEBACLE: WHERE WAS THE AUDIT COMMITTEE?

 BOARD OF DIRECTORS – PRINCIPLES RESPONSIBILITIES:

• REVIEWING & ADOPTING A STRATEGIC PLAN;
• OVERSEEING THE CONDUCT OF THE BUSINESS TO EVALUATE
WHETHER THE BUSINESS IS BEING PROPERLY MANAGED;
• IDENTIFYING PRINCIPAL RISKS & ENSURING THE IMPLEMENTATION
OF APPROPRIATE SYSTEMS TO MANAGE THESE RISKS;
• SUCCESSION PLANNING, INCLUDING APPOINTING, TRAINING,
FIXING THE COMPENSATION OF & WHERE APPROPRIATE,
REPLACING SENIOR MANAGEMENT;
• DEVELOPING & IMPLEMENTING AN INVESTOR RELATIONS
PROGRAMME OR SHAREHOLDER COMMUNICATIONS POLICY;
• REVIEWING THE ADEQUACY & THE INTEGRITY OF THE INTERNAL
CONTROL SYSTEMS & MIS, INCLUDING SYSTEMS FOR COMPLIANCE
WITH APPLICABLE LAWS, REGULATIONS, RULES, DIRECTIVE &
GUIDELINES.

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 AUDIT COMMITTEE – AUTHORITY BY THE BOD:

• BE APPROPRIATELY & ADEQUATELY RESOURCED TO PERFORM ITS
DUTIES;
• HAS FULL, UNRESTRICTED & TIMELY ACCESS TO ANY INFO &
RELEVANT DOCUMENTS;
• HAVE DIRECT COMMUNICATION CHANNELS WITH THE EXTERNAL &
INTERNAL AUDITORS;
• CONVENE MEETINGS WITH THE EXTERNAL & INTERNAL AUDITORS,
EXCLUDING THE ATTENDANCE OF THE EXECUTIVE MEMBERS OF
THE COMMITTEE, IF DEEMED NECESSARY;
• OBTAIN EXTERNAL LEGAL OR INDEPENDENT PROFESSIONAL ADVICE
& SECURE ATTENDANCE, IF IT CONSIDERS NECESSARY;
• HAVE EXPLICIT AUTHORITY TO INVESTIGATE ANY ACTIVITIES
ARISING WITHIN ITS TERMS OF REFERENCE.

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 FINANCIAL DEBACLE: WHERE WAS THE AUDIT COMMITTEE?

AUDIT COMMITTEE – DUTIES & RESPONSIBILITIES:

 REVIEW AUDIT PLAN WITH EXTERNAL AUDITORS;
 REVIEW THE ADEQUACY & EFFECTIVENESS OF THE ACCOUNTING & INTERNAL
CONTROL SYSTEMS;
 ACT UPON PROBLEMS & RESERVATIONS ARISING FROM INTERIM & FINAL AUDITS;
 REVIEW THE FINANCIAL STATEMENTS PRIOR TO THE DIRECTORS’ APPROVAL TO
ENSURE A FAIR & FULL PRESENTATION OF THE FINANCIAL AFFAIRS OF THE
COMPANY;
• FOCUSING ON: ANY CHANGE IN ACCOUNTING POLICIES & PRACTICES,
SIGNIFICANT ADJUSTMENTS ARISING FROM THE AUDIT, GOING CONCERN
ASSUMPTIONS & COMPLIANCE WITH ACCOUNTING STANDARDS & LEGAL
REQUIREMENTS.
 REVIEW ANY RELATED PARTY TRANSACTIONS;
 ASSIST IN ESTABLISHING APPROPRIATE CONTROL PROCEDURES;
 REVIEW INTERNAL AUDIT REPORTS & HIGHLIGHT TO THE BOD ANY SIGNIFICANT
ISSUES;
 ASSIST IN CONDUCTING OF MANAGEMENT AUDITS OR OTHER SENSITIVE
MATTERS;
 RECOMMENDATIONS TO RETAIN OR REPLACE THE FIRM OF EXTERNAL AUDITORS &
THE AGREEMENT OF THE AUDIT FEE FOR THE ENSUING YEAR.

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AUDIT COMMITTEE – FOCUS DURING THE FINANCIAL CRISIS:

 MONITOR FINANCIAL CRISIS IMPACT;
• COMPANY’S LIQUIDITY, DEBT, CASH FLOW, EARNINGS, ABILITY TO
REFINANCE, USE OF CAPITAL etc.
 ASSES’S THE COMPANY’S EXPOSURE TO THIRD PARTIES;
• CUSTOMERS, SUPPLIERS, BANKS etc.
 UNDERSTAND THE IMPACT OF THE FINANCIAL CRISIS ON THE COMPANY’S
FINANCIAL;
• INVESTMENT PORTFOLIO, DECLINES IN VALUE etc.
 CONSIDER THE ADEQUACY & EFFECTIVENESS OF THE COMPANY’S GOVERNANCE
PROCESSES FOR MANAGING RISK;
• IDENTIFY THE “UNKNOWN RISKS”, REVISIT FUNDAMENTAL ASSUMPTIONS
 REVIEW FINANCIAL PLANS & BUDGETS;
 BE SENSITIVE TO THE STRAINS ON THE FINANCE TEAMS’ JOBS;
• CFO, FINANCE DEPARTMENT, AUDITORS
 EXPAND THE AUDIT COMMITTEE’S INFO SOURCES;
• EXPERTS TO LOOK AT COMPANY’S RISK PROFILE, ADVISORS, AUDITORS
 RE-EVALUATE FINANCIAL COMMUNICATIONS.
• DISCLOSURE REQUIREMENTS, MORE DISCUSSIONS & ANALYSIS

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 BASIC RULES TO CREATE GOOD & EFFICIENT CORPORATE

GOVERNANCE (CG) SYSTEM:
• EFFECTIVE STANDARDS OF CG;
• A HIGH DEGREE OF CORPORATE TRANSPARENCY &
ADEQUATE EXTERNAL AUDITING;
• EFFICIENT STOCK EXCHANGE;
• COMPETITIVE MARKETS;
• LEGAL FRAMEWORKS THAT ARE EFFICIENT & TRANSPARENT;
• MUST BE A CLEAR DISTINCTION BETWEEN REGULATORS &
THE REGULATED;
• BANKING SYSTEMS THAT ARE INDEPENDENT, TRANSPARENT
& COMPETITIVE;
• A WELL-RESOURCED, INQUISITIVE, & INDEPENDENT MEDIA.

(Michael Backman, Asian Eclispe – Exposing the Dark Side of Business in Asia
(2001), Revised Edition)

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THANK YOU

AljeffriDean
 FINANCIAL DEBACLE: WHERE WAS THE AUDIT COMMITTEE?

AljeffriDean
13 Dec 2011 Appendix