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ACI Annual Audit Committee Survey - Global

R E S E A R C H. ACI Annual Audit Committee Survey - Global. M A R K E T I N G & C O M M U N I C A T I O N S. Charles Garbowski Research February 21, 2006. Objectives And Methodology. Objectives. Gauge input, globally from Audit Committee Members regarding: Audit Committee processes

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ACI Annual Audit Committee Survey - Global

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  1. R E S E A R C H ACI AnnualAudit Committee Survey - Global M A R K E T I N G & C O M M U N I C A T I O N S Charles Garbowski Research February 21, 2006

  2. Objectives And Methodology

  3. Objectives • Gauge input, globally from Audit Committee Members regarding: • Audit Committee processes • Issues and trends affecting Audit Committees • Composition / background of Audit Committees and their members • Relationships with other company functions / executives • Compare results by global region

  4. Methodology • Analysis based on 1,231 electronic and paper surveys conducted November 1, 2005 – January 31, 2006 in the following global regions: • Americas (453 respondents) • Europe (413 respondents) • South Africa (84 respondents) • Asia (136 respondents) • Australia (133 respondents) • Other / unspecified international (12 respondents)

  5. Methodology • Americas: • Brazil • Canada • Mexico • U.S. • Europe: • Belgium • Denmark • France • Germany • Ireland • Isle of Man • Netherlands • Switzerland • U.K.

  6. Methodology • South Africa • Asia: • India • Malaysia • Singapore • Australia

  7. Methodology • Respondents are all Audit Committee Members of at least one company • U.S. and Canada respondents are all Audit Committee Members of at least one public company • Respondents were asked to respond based on the largest company (by revenue) for which they serve as an Audit Committee Member • U.S. and Canada respondents were asked to respond based on largest public company for which they serve as an Audit Committee Member • For international companies in which a Supervisory Board fulfills the Audit Committee role, respondents answered based on the Supervisory Board’s Audit Committee activities

  8. Key Findings

  9. Key FindingsAC Evaluation Of Committee / Processes • Globally, respondents rate their Audit Committees at least “somewhat effective” overall • More than half say “very effective” • Nearly half indicate room for improvement • Of the regions analyzed, Americas rates their Audit Committee effectiveness the highest • Audit Committee effectiveness is improving • 2 in 3 say AC has “become more effective” in the past year • The trend is similar across global regions AUDIT COMMITTEE MEMBERS ARE GENERALLY AT LEAST “SOMEWHAT SATISFIED”WITH THEIR EFFECTIVENESS, PARTICULARLY IN THE AMERICAS

  10. Key FindingsAC Evaluation Of Committee / Processes • Almost all are at least “somewhat satisfied” that the Audit Committee devotes an appropriate amount of time and attention to its duties • Americas, Australia most satisfied with time and attention devoted by their Audit Committee • South Africa is least satisfied • Significant majority say Audit Committee is “very effective” at ensuring independence / accountability of external audit • Americas rated their Audit Committee’s effectiveness very highly in ensuring external auditor independence / accountability

  11. Key FindingsAC Evaluation Of Committee / Processes • Nearly all respondents at least “somewhat satisfied” with approach used to establish Audit Committee agenda / work plan • However, more than 4 in 10 indicate there is room for improvement • Americas, Australia most satisfied with their AC agenda and work plan approach • Asia least satisfied • More than 6 in 10 say pre-Audit Committee meeting materials are “high quality” • Others say quality is “moderate” • Australia, Europe rate the quality of their pre-AC meeting materials highly • Majority of Asia rate quality as “moderate”

  12. Key FindingsAC Evaluation Of Committee / Processes • Nearly 4 in 10 say their Board has communicated the most constructive suggestions for improving the Audit Committee • 2 in 10 cite their external auditor • “Board of Directors” is the leading response in all global regions • Among those with an Audit Committee self-evaluation process, almost all at least “somewhat satisfied” with evaluation approach • 3 in 10 “very satisfied” • Satisfaction with self-evaluation process similar across global regions

  13. Key FindingsPersonal Financial Liability • 3 in 4 say legal / financial exposure at least “somewhat greater” for Audit Committee than for other board members • 1 in 4 say “significantly greater” (included in number above) • 4 in 10 from South Africa and Asia say legal / financial exposure “significantly greater” for Audit Committee ACROSS GLOBAL REGIONS, AUDIT COMMITTEE MEMBERS HAVE PERSONAL CONCERNS ABOUT THEIR ROLE AND ITS RISKS

  14. Key FindingsPersonal Financial Liability • Personal financial exposure concerns Audit Committee members • 1 in 4 say “very concerned” • All regions share this concern • Asia, South Africa most likely to be “very concerned” • Most respondents at least “somewhat satisfied” with Directors & Officers liability insurance coverage • However, 3 in 4 indicate room for improvement • Satisfaction trend holds across global regions • Asia least likely to be “very satisfied”

  15. Key FindingsTime Commitment • 3 in 4 spent under 100 hours fulfilling their Audit Committee Member role in 2005 (for specified Audit Committee) • Nearly 4 in 10 spent less than 50 hours • Nearly 4 in 10 Americas respondents spent more than 100 hours (most of any global region) • Only 1 in 10 in Asia spent more than 100 hours • Respondents serve on an average of 2.4 Audit Committees (including public and private Committees) • Similar across global regions – ranges from 2.1 in Europe to 2.7 in South Africa, Americas AUDIT COMMITTEE MEMBER TIME COMMITMENT VARIES BY GLOBAL REGION, MOST WORK LESS THAN 100 HOURS ANNUALLY PER COMMITTEE

  16. Key FindingsTime Commitment • Respondents averaged 6.5 Audit Committee meetings last year • Americas met most often: 8.6 • Other regions ranged from 5.0 to 5.8 • Most meetings were face-to-face (3:1) • Number of face-to-face Audit Committee meetings averaged 4.9 per year vs. teleconference meetings 1.6 per year • Face-to-face meetings are longer (2:1) • Face-to-face Audit Committee meetings averaged 2.9 hours vs. teleconference meetings 1.2 hours

  17. Key FindingsComposition / Background • Significant majority of respondent companies have 3 or 4 members serving on their Audit Committee • Average: 3.9 • South Africa average 4.9 (the most of any global region) • CFO or related accounting / finance experience, broad business experience are viewed as “very important” Audit Committee background attributes • These attributes are most important for all global regions • Almost all say it is “very important” for one or more Audit Committee Member to have financial reporting / accounting expertise • Across all global regions

  18. Key FindingsComposition / Background • Integrity tops list of Audit Committee personal characteristics • Contacts and public profile least important • Trend holds for all global regions

  19. Key FindingsRelationship With Internal Audit / Others (Among Those With IA Function) • 4 in 10 say Audit Committee / Audit Committee Chair has ultimate authority to hire / fire Chief Audit Executive • Global regions differ on whether it is primarily the Audit Committee / Audit Committee Chair or the full Board • Respondents confident Chief Audit Executive would directly report controversial senior management issues to the Audit Committee • Most global regions “very confident” that Chief Audit Executive would directly report issues to Audit Committee • Asia “somewhat confident”

  20. Key FindingsRelationship With Internal Audit / Others • Most respondents “very satisfied” with interaction / support from CFO • Less satisfied with support from others • CFO has highest satisfaction in all global regions, except: • Asia most satisfied with interaction / support from Full Board • Australia most satisfied with interaction / support from External Audit Partner • Least satisfied with support from external legal counsel • In all regions

  21. Detailed Findings

  22. Audit Committee Evaluation Of Committee / Processes

  23. Respondents Rate Their ACs At Least “Somewhat Effective”; Nearly Half Indicate Room For Improvement Globally n = 1161 % Saying Effective 95% Percentages do not add to 100% due to rounding Q63. How would you rate the overall effectiveness of your Audit Committee? (Select one)

  24. Americas Rates Their Audit Committee Effectiveness The Highest Percentages do not add to 100% due to rounding Q63. How would you rate the overall effectiveness of your Audit Committee? (Select one)

  25. Audit Committee Effectiveness Improving – 2 In 3 Say Audit Committee Has “Become More Effective” In The Past Year Globally n =1151 Q64. In the past year, would you say the Audit Committee has: (Select one)

  26. This Trend Is Similar Across Global Regions Q64. In the past year, would you say the Audit Committee has: (Select one)

  27. Almost All At Least “Somewhat Satisfied” That AC Devotes An Appropriate Amount Of Time And Attention To Its Duties Globally n = 1178 % Satisfied 93% Percentages do not add to 100% due to rounding Q18. How satisfied are you that the Audit Committee devotes an appropriate amount of time and attention to its duties? (Select one)

  28. Americas, Australia Most Satisfied With Time And AttentionDevoted To AC Duties; South Africa Least Satisfied Percentages do not add to 100% due to rounding Q18. How satisfied are you that the Audit Committee devotes an appropriate amount of time and attention to its duties? (Select one)

  29. Significant Majority Say Audit Committee “Very Effective” At Ensuring Independence / Accountability Of External Auditor Globally n = 1171 % Satisfied 98% Q36. How effective is the Audit Committee at helping ensure the External Auditor’s independence from management and accountability to the Audit Committee? (Select one)

  30. Americas Rated Their AC’s Effectiveness Very Highly In Ensuring External Auditor Independence / Accountability Percentages do not add to 100% due to rounding Q36. How effective is the Audit Committee at helping ensure the External Auditor’s independence from management and accountability to the Audit Committee? (Select one)

  31. Nearly All At Least “Somewhat Satisfied” With Approach Used To Establish Audit Committee Agenda / Work Plan Globally n = 1184 % Satisfied 91% Percentages do not add to 100% due to rounding Q20. How satisfied are you with the approach used to establish the Audit Committee’s agenda/work plan? (Select one)

  32. Americas, Australia Most Satisfied With Their AC Agenda And Work Plan Approach; Asia Least Satisfied Percentages do not add to 100% due to rounding Q20. How satisfied are you with the approach used to establish the Audit Committee’s agenda/work plan? (Select one)

  33. More Than 6 In 10 Say Pre-Audit Committee Meeting Materials Are “High Quality”; Others Say Quality Is “Moderate” Globally n = 1184 Percentages do not add to 100% due to rounding Q24. How would you rate the quality of the pre-Audit Committee meeting materials provided to your Audit Committee? (Select one)

  34. Australia, Europe Rate The Quality Of Their Pre-Audit Committee Meeting Materials Highly; Majority Of Asia Rate Quality As “Moderate” Percentages do not add to 100% due to rounding Q24. How would you rate the quality of the pre-Audit Committee meeting materials provided to your Audit Committee? (Select one)

  35. Nearly 4 In 10 Say Their Board Has Communicated The Most Constructive Suggestions For Improving AC Globally n = 1104 Percentages do not add to 100% due to rounding Q60. Who has identified and communicated the most constructive suggestions to improve the Audit Committee’s organization and activities as a result of their interaction with the Committee? (Select one)

  36. Entity Identifying / Communicating The Most Constructive Audit Committee Suggestions – By Global Region Percentages do not add to 100% due to rounding Q60. Who has identified and communicated the most constructive suggestions to improve the Audit Committee’s organization and activities as a result of their interaction with the Committee? (Select one)

  37. Entity Identifying / Communicating The Most Constructive Audit Committee Suggestions – By Global Region Percentages do not add to 100% due to rounding Q60. Who has identified and communicated the most constructive suggestions to improve the Audit Committee’s organization and activities as a result of their interaction with the Committee? (Select one)

  38. Almost All At Least “Somewhat Satisfied” With Audit Committee’s Current Self Evaluation Approach Globally Among Those With A Self-Evaluation Process n = 832 % Satisfied 93% Q56. How satisfied are you that your Audit Committee’s current self-evaluation approach enhances its effectiveness? (Select one)

  39. Satisfaction With Self-Evaluation Process Similar Across Global Regions Among Those With A Self-Evaluation Process Percentages do not add to 100% due to rounding Q56. How satisfied are you that your Audit Committee’s current self-evaluation approach enhances its effectiveness? (Select one)

  40. Personal Financial Liability

  41. 3 In 4 Say Legal/Financial Exposure “Somewhat Greater” For AC Than Other Board Members; 1 In 4 Say “Significantly” Globally n = 1154 % Saying Exposure Greater For AC 77% Q45. In your opinion, how do the legal obligations/financial exposures of Audit Committee Members compare with those of other Board Members? (Select one)

  42. 4 In 10 From South Africa And Asia Say Legal / Financial Exposure “Significantly Greater” For Audit Committee Percentages do not add to 100% due to rounding Q45. In your opinion, how do the legal obligations/financial exposures of Audit Committee Members compare with those of other Board Members? (Select one)

  43. Personal Financial Exposure Concerns Audit Committee Members Globally n = 1179 % Concerned 82% U.S. and Canada: Q44. How concerned are you about the potential for personal financial exposure as a public company Audit Committee Member? (Select one) All others: Q44: How concerned are you about the potential for personal financial exposure as an Audit Committee Member? (Select one)

  44. All Regions Share This Concern; Asia, South Africa Most Likely To Be “Very Concerned” Percentages do not add to 100% due to rounding U.S. and Canada: Q44. How concerned are you about the potential for personal financial exposure as a public company Audit Committee Member? (Select one) All others: Q44: How concerned are you about the potential for personal financial exposure as an Audit Committee Member? (Select one)

  45. Most Respondents At Least “Somewhat Satisfied” With Directors & Officers Liability Insurance Coverage Globally n = 1093 % Satisfied 91% Q46. How satisfied are you that your Directors & Officers liability insurance coverage adequately minimizes your personal financial exposure? (Select one)

  46. This Is True Across Global Regions Percentages do not add to 100% due to rounding Q46. How satisfied are you that your Directors & Officers liability insurance coverage adequately minimizes your personal financial exposure? (Select one)

  47. Time Commitment

  48. 3 In 4 Spent Under 100 Hours Fulfilling Their AC Member Role In 2005 (For Specified Audit Committee) Globally n = 1186 % Under 100 Hours 77% Percentages do not add to 100% due to rounding Q17. How much time do you expect to spend in 2005 fulfilling your role as an Audit Committee Member (excluding other Board responsibilities), including all related meetings and preparation time? (Select one)

  49. Time Spent In Audit Committee Member Role In 2005 By Global Region Percentages do not add to 100% due to rounding Q17. How much time do you expect to spend in 2005 fulfilling your role as an Audit Committee Member (excluding other Board responsibilities), including all related meetings and preparation time? (Select one)

  50. Time Spent In Audit Committee Member Role In 2005 By Global Region Percentages do not add to 100% due to rounding Q17. How much time do you expect to spend in 2005 fulfilling your role as an Audit Committee Member (excluding other Board responsibilities), including all related meetings and preparation time? (Select one)

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