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A Leadership Prescription for Audit Committee Members:

A Leadership Prescription for Audit Committee Members: “Energizing your Audit Committee to Ask the Hard Questions” Presentation to CAACM’s 5 th Annual Meeting & Conference in Collaboration with ICATT July 13, 2011 The Hyatt Regency, Port of Spain, Trinidad . Presented By:

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A Leadership Prescription for Audit Committee Members:

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  1. A Leadership Prescription for Audit Committee Members: “Energizing your Audit Committee to Ask the Hard Questions” Presentation to CAACM’s 5th Annual Meeting & Conference in Collaboration with ICATT July 13, 2011 The Hyatt Regency, Port of Spain, Trinidad.

  2. Presented By: Mr. Larry Kowlessar and Dr. Lennox Sealy Organization Development Consultant CAIB 2011 THEME Adding Value Not Bureaucracy: The Role of the Audit Committee in Assessing Your Business Risk Profile, Risk Priorities and Governance Structures

  3. Recent research shows the following Population Statistics 32% die of old age 30% die from cancer 25% die from heart disease 10% die from road and other accidents 2.5% die from insect and snake bites 0.5% are taken by crocs and sharks …….and it is expected that by 2020 0.1% will start dying from boredom because of listening to PowerPoint presentations at Conferences

  4. PRESENTATION FLOW Let’s Start with….. 1.0 The End Continue with… 2.0 The Beginning Finish with… 3.0 The Continuation

  5. Be reminded of the Role of the Audit Committee • Hear an interpretation of the challenges of an Audit Committee in today’s environment and • Digest some recommendations as to how Audit Committees can add value AFTER HEARING MY PRESENTATION YOU WILL…

  6. 1.0 The End CLOSING THOUGHT Question: Why do luxury cars and large vehicles have great braking systems? Answer: Because if they are large and /or can go fast .. They must be able to stop more quickly 6

  7. More Control ... More Creativity Controls have traditionally been viewed as a stifling of freedom or creativity, but it also can be viewed as a way to improve or allow speed, freedom and creativity 7

  8. What Really is an Audit Committee? 2.0 The Beginning

  9. "The Audit committee is the governance body that is charged with oversight of the organization’s audit and control functions” (International Institute of Auditors (IIA) Practice Advisory 2060-2 of 2004). THE AUDIT COMMITTEE 9

  10. Board of Directors – determines and approves strategies, sets objectives and ensures the objectives are being met • Audit Committee – responsible for overseeing the internal control structure (operations, compliance, risk and financial reporting) • Senior Management– defines, develops, implements, and documents the internal control structure • External Audit – attests to the fair statement of financial results • Internal Audit - validate the internal control structure by analyzing the effectiveness of internal controls Audit Committee Context 10

  11. Why an Audit Committee • “Audit committees are designed • to help boards and directors • discharge their duties • regarding : • Reported financial information • Central controls • Corporate codes of conduct • (if any exist).

  12. Overseeing the financial reporting and disclosure process • Monitoring choice of accounting policies and principles • Overseeing hiring, performance and independence of the external auditors • Oversight of regulatory compliance, ethics, and whistleblower hotlines • Monitoring the internal control process • Overseeing the performance of the internal audit function • Discussing risk management policies and practices with management THE AUDIT COMMITTEE ROLES 12

  13. Audit Committee Charter • Typically the role, responsibilities and authority of the Audit Committee will be set out in a board approved Charter. • As noted in IIA Practice Advisory 2060-2 Internal Audit has an important role to play in assisting the Audit Committee to ensure that its charter, activities and processes are appropriate to fulfil its responsibilities. 13

  14. Audit Committee Charter • The Charter must be reviewed regularly as new responsibilities are taken on by the Audit Committee. • Internal audit can ensure that the Charter is updated to take new legal requirements and best practices into account and co-ordinate an annual review of the charter and report to the Audit Committee on its performance against the Charter during the year. 14

  15. RESULTS OF THE WORK OF A GOOD AUDIT COMMITTEE The board makes properly informed decisions regarding: • Accounting policies • Accounting Practices • Risk management and • Disclosure

  16. Audit Committee Leadership

  17. Who is on your Committee? 17

  18. The members must be: • Non-executive with a majority being independent and • At least one of the three independent directors must be a qualified accountant. Audit Committee Composition

  19. Key is good understanding of the business — including company’s products, services, and industry • Willingness to dedicate substantial time and energy • Good financial knowledge • Willingness to attend regular training 7 Attributes of Effective Audit Committee Members

  20. Extremely high level of integrity • Healthy skepticism and courage to challenge • Inquisitiveness and independent judgment 7Attributes of Effective Audit Committee Members (Cont’d)

  21. Sarbanes-Oxley is the most significant legislation pertaining to financial reporting, and auditing, since the establishment of the Securities and Exchange Commission (SEC) in the 1930s. • The act has had an observable impact on business, one example of which is the increase in financial expertise on audit committees. • An enhanced partnership is now required between external auditors, internal auditors, and audit committees. 21 Sarbanes-Oxley and the Future of The Audit Committee

  22. 2.0 Challenges of the Audit Committee – 20 Leadership Questions

  23. “Better to have an approximate answer to the right question, than an exact answer to the wrong question.”Statistician - John W. Tucker Asking the Right Questions? 23

  24. 20 Questions - 4 Categories B. Stress Management C. Allocation of Responsibilities & Role Engagement A. Evaluation Effectiveness D. Information, Training & Decision Making

  25. How satisfied are you with your current evaluation process? • How can the external auditor add the most value to your assessment process? • Should individual members be evaluated? • Does feedback from the audit committee assessment lead to changes in behaviour, process or both? A. Evaluation Effectiveness

  26. As audit committee chair, how much additional time do you spend on committee business compared with other audit committee members? • How do you coordinate with internal and external audit, members of the finance organization or other board members in advance of audit committee meetings? A. Evaluation Effectiveness (cont’d) 26

  27. What pressures is your audit committee under from various stakeholders? • How is this affecting your audit committee agenda and how you approach your work? • Have we reached a point where audit committee over-reach is itself a risk? B. Stress Management 27

  28. What makes for an effective and engaged audit committee member? • How does your Board allocate responsibilities to the audit committee and other committees of the Board? C. Allocation of Responsibilities & Role Engagement

  29. Have there been any major changes in allocation between committees or between a committee and the full Board? • What role can the audit chair play in making sure committee members stay engaged? Allocation of Responsibilities & Role Engagement (cont’d)

  30. How do you determine what information should be provided to the audit committee? • Who else is involved in that decision and how do you work with management to refine information for the audit committee? • What is the most effective way to deliver audit committee technical education? D. Information, Training & Decision Making

  31. What techniques do you find most useful for chairing efficient audit committee meetings? • What is a good balance between presentation and discussion? • How can you create space for more discussion of topical issues? D. Information, Training & Decision Making (Cont’d) 31

  32. 3.0 The Key Recommendation for Adding Value - Quality Evaluation

  33. Evaluate committee performance regularly by comparing activities against • Charter • Leading practice • Assess committee dynamics, not only on what the committee does, but also on how effectively it functions • Evaluations should be robust - not simply a “check the box” exercise • Obtain feedback from board, management, internal audit, general counsel, and external auditors Quality Evaluations

  34. Thank You For Your AttentionPlease Continue Your Improvement Processes 34

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