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Key Risk Areas of
Audit Committee
Nik Mohd Hasyudeen Yusoff
17 November 2016
Managing risks starts with
the construct of the whole
board
RegulatorsShareholders Lenders
Stakeholders
Corporate governance Business governance
Internal control
Assurance
Strategy
P...
While audit committee has its own
mandate, its effectiveness is
influenced by the overall effectiveness
of governance with...
Board
Corporate Governance in practice:
Setting up an effective board
Nomination and
remuneration
committee
Audit committe...
Effectiveness of audit committee is
interdependent on the
effectiveness of management in
discharging its responsibilities
Role in financial reporting Role in financial reporting
Assess control
Engage auditors
Apply policy
Control effectiveness
...
Role in acquisition of
business
Role in acquisition of
business
Assess conflicts
Prepare business case
Identify source of ...
The modus operandi of
most fraud remains the
same
Company Third party 1
Money gets transferred back to
into the director’s or management’s account
Director/Manage
ment
Gene...
The regulator is responding
using S 317A of CMSA -
“causing wrongful loss”
S 317A of CMSA
• A director or an officer of a listed corporation or any of its
related corporations shall not do or cause...
• A former ED and CEO was reprimanded and fined
RM200,000 for remitting more than US$1 million (RM4.19
million) to foreign...
• A suit was filed by the SC against a deputy MD of a listed
company. A sum of more than RM11 million non-refundable
depos...
Possible contributory
factors
• Board members were part of the scheme
• Independent directors becoming dependent
• Inadequate understanding of the indus...
Responding to risks
• Adequate skills and competency around the table
• Adequate time and information provided
• Culture in the boardroom
• So...
Concluding thoughts
• Audit committee functions within the overall construct of the
governance structure of the company, right structure matte...
Key risk areas of audit committee ppt
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A thought on how audit committees could be more effective

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Key risk areas of audit committee ppt

  1. 1. Key Risk Areas of Audit Committee Nik Mohd Hasyudeen Yusoff 17 November 2016
  2. 2. Managing risks starts with the construct of the whole board
  3. 3. RegulatorsShareholders Lenders Stakeholders Corporate governance Business governance Internal control Assurance Strategy People Process Finance Sustainable Enterprise Board and management Conscience Competence Role and structure Risk management Customers Compliance Stewardship Board sets tone and oversees management with division of responsibilities based on the delegation made by the board Culture Business development Business and Governance: A snapshot of the views from the boardroom
  4. 4. While audit committee has its own mandate, its effectiveness is influenced by the overall effectiveness of governance within the company
  5. 5. Board Corporate Governance in practice: Setting up an effective board Nomination and remuneration committee Audit committee Nomination and succession Remuneration Performance Evaluation Risk management Internal control Financial reporting and audit Purpose, values and risk appetite Strategy and business models Disclosure and communication Performance targets and assessments Conduct and compliance Human potential development Capital structure and dividend policy Delegation, key policies and procedures Performance is driven by having the right balance of competent and conscientious members who lead and make decisions based on quality information in compliance with robust process and having adequate check and balance
  6. 6. Effectiveness of audit committee is interdependent on the effectiveness of management in discharging its responsibilities
  7. 7. Role in financial reporting Role in financial reporting Assess control Engage auditors Apply policy Control effectiveness Prepare financial statements Facilitate audit process Set policy Review financial statements Audit Committee Management Set the tone on financial reporting Approves financial statements based on the recommendations of audit committee Clear division of responsibilities based on delegation by the board Board Corporate Governance in practice: Getting Financial Reporting Right
  8. 8. Role in acquisition of business Role in acquisition of business Assess conflicts Prepare business case Identify source of finance Ensure compliance with regulation Assess risks Review disclosure Audit Committee Management Set the general policy on acquisition Approves acquisition after considering and challenging recommendation of management Board Within strategy and risk appetite Viability of financing Business case proven Perform due diligence Prepare disclosure Corporate Governance in practice: Dealing with Business Acquisitions
  9. 9. The modus operandi of most fraud remains the same
  10. 10. Company Third party 1 Money gets transferred back to into the director’s or management’s account Director/Manage ment General MO of fraud: Merry Go Round Third party 2 Third party 3 Induces Enters into transactions with a third party controlled/friendly to the director or management, normally cash is paid upfront for benefits which may be received way later in the future Money gets transferred to series of other entities within or outside Malaysia
  11. 11. The regulator is responding using S 317A of CMSA - “causing wrongful loss”
  12. 12. S 317A of CMSA • A director or an officer of a listed corporation or any of its related corporations shall not do or cause anyone to do anything with the intention of causing wrongful loss to the listed corporation or any of its related corporations irrespective of whether the conduct causes actual wrongful loss. • A person who contravenes subsection (1) commits an offence and shall, on conviction, be punished with imprisonment for a term which shall not be less than two years but not exceeding ten years and be liable to a fine not exceeding ten million ringgit.
  13. 13. • A former ED and CEO was reprimanded and fined RM200,000 for remitting more than US$1 million (RM4.19 million) to foreign parties without the authorisation of the board. The monies were later used to purchase assets in the name of the director. Another former ED and CFO was reprimanded and fined RM150,000 for approving the vouchers for the remittances. The amount remitted was eventually refunded to the company. • A former MD and three former EDs were charged for causing wrongful loss in the second case. The charges are related to payments totalling RM5.1 million purportedly for the development of various software for the company which were allegedly used for other purposes.
  14. 14. • A suit was filed by the SC against a deputy MD of a listed company. A sum of more than RM11 million non-refundable deposits were paid to several local representatives of 23 foreign companies for the exclusive rights to market and promote their products in Malaysia and Singapore. The amount was then allegedly paid by the local representatives into the deputy MD’s personal account. The SC had managed to obtain an injunction to restrain the deputy MD from dealing with the monies in the person’s bank accounts and is also seeking various orders, including for the amount to be restituted, the director concerned be barred from being a director of a listed company for five years and a civil penalty of RM1 million. • Can read the article about the implications of causing wrongful loss: http://themalaysianreserve.com/new/story/implications- wrongful-loss-directors#overlay=node/164027/edit
  15. 15. Possible contributory factors
  16. 16. • Board members were part of the scheme • Independent directors becoming dependent • Inadequate understanding of the industry and business • Inadequate due diligence done to assess the integrity of the counter-party • Did not apply professional scepticism • Decision required at the last minute
  17. 17. Responding to risks
  18. 18. • Adequate skills and competency around the table • Adequate time and information provided • Culture in the boardroom • Sought expert advice • Having an effective internal audit function, seek their assistance • Having external auditors who understand the industry and able to challenge management decisions • Don’t be shy to ask simple questions • Ensure minute of meetings reflect the substance of discussions, rationale of decisions and dissenting views, if any
  19. 19. Concluding thoughts
  20. 20. • Audit committee functions within the overall construct of the governance structure of the company, right structure matters • Adequate skills and competency around the table are important, not forgetting people with conscience • The role play between board and management must be clearly defined, board has to also defines its risks appetite • Internal control and its effectiveness must be in place and reviewed regularly • Effective and independent internal and external audit functions support audit committees, provide them with the air cover and remunerate them appropriately • For every transaction, ask “would I do this if this is my own company?”
  • AhmadFariziFikri

    Jan. 18, 2017
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    Nov. 19, 2016
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    Nov. 19, 2016
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    Nov. 18, 2016
  • NikLee

    Nov. 18, 2016

A thought on how audit committees could be more effective

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