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, 2011The Hyatt Regency, Port of Spain, Trinidad.

Presented By:Mr. Larry Kowlessar

andDr. Lennox Sealy

Organization Development Consultant

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CAIB 2011 THEMEAdding Value Not Bureaucracy: The

Role of the Audit Committee in Assessing Your Business Risk Profile,

Risk Priorities and Governance Structures

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32% die of old age30% die from cancer25% die from heart disease10% die from road and other accidents2.5% die from insect and snake bites0.5% 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

Recent research shows the following Population Statistics

PRESENTATION FLOW

1.0 The End

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2.0 The Beginning

3.0 The Continuation

Let’s Start with…..

Finish with…

Continue with…

1. Be reminded of the Role of the Audit Committee2. Hear an interpretation of the challenges of an Audit Committee in today’s environment and3. Digest some recommendations as to how Audit Committees can add value5

AFTER HEARING MYPRESENTATION YOU WILL…

CLOSING THOUGHT

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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

1.0 The End

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

More Control ... More Creativity

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What Really is an Audit Committee?

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2.0 The Beginning

THE AUDIT COMMITTEE

"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).

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10February 14, 2007

Audit Committee Context 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 10

“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).

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Why an Audit Committee

THE AUDIT COMMITTEE ROLES1. Overseeing the financial reporting and disclosure

process2. Monitoring choice of accounting policies and

principles3. Overseeing hiring, performance and

independence of the external auditors4. Oversight of regulatory compliance, ethics, and

whistleblower hotlines5. Monitoring the internal control process6. Overseeing the performance of the internal audit

function7. Discussing risk management policies and

practices with management

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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.

Audit Committee Charter

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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.

Audit Committee Charter

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RESULTS OF THE WORK OF AGOOD AUDIT COMMITTEEThe board makes properly informed decisions regarding:

Accounting policies Accounting Practices Risk management and Disclosure

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Audit CommitteeLeadership

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Who is on your Committee?

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Audit Committee Composition 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.

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7 Attributes of Effective Audit Committee Members

1. Key is good understanding of the business — including company’s products, services, and industry

2. Willingness to dedicate substantial time and energy

3. Good financial knowledge4. Willingness to attend regular

training

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7Attributes of Effective Audit Committee Members (Cont’d)

5. Extremely high level of integrity6. Healthy skepticism and courage to

challenge7. Inquisitiveness and independent

judgment

Sarbanes-Oxley and the Future of The Audit Committee

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.

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2.0 Challenges of the Audit Committee –

20 Leadership Questions

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Asking the Right Questions?

“Better to have an approximate answer to the right question, than an exact

answer to the wrong question.”

Statistician - John W. Tucker

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A. Evaluation Effectiveness

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B. Stress Management

C. Allocation of Responsibilities & Role Engagement

D. Information, Training & Decision Making

20 Questions - 4 Categories

A. Evaluation Effectiveness

1. How satisfied are you with your current evaluation process?

2. How can the external auditor add the most value to your assessment process?

3. Should individual members be evaluated? 4. Does feedback from the audit committee

assessment lead to changes in behaviour, process or both?

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A. Evaluation Effectiveness (cont’d)5. As audit committee chair, how much

additional time do you spend on committee business compared with other audit committee members?

6. How do you coordinate with internal and external audit, members of the finance organization or other board members in advance of audit committee meetings?

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7. What pressures is your audit committee under from various stakeholders?

8. How is this affecting your audit committee agenda and how you approach your work?

9. Have we reached a point where audit committee over-reach is itself a risk?

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B. Stress Management

C. Allocation of Responsibilities & Role Engagement

10. What makes for an effective and engaged audit committee member?

11.How does your Board allocate responsibilities to the audit committee and other committees of the Board?

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Allocation of Responsibilities & Role Engagement (cont’d)

12. Have there been any major changes in allocation between committees or between a committee and the full Board?

13. What role can the audit chair play in making sure committee members stay engaged?

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D. Information, Training & Decision Making14. How do you determine what

information should be provided to the audit committee?

15.Who else is involved in that decision and how do you work with management to refine information for the audit committee?

16.What is the most effective way to deliver audit committee technical education?

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17. What techniques do you find most useful for chairing efficient audit committee meetings?

18. What is a good balance between presentation and discussion?

19. How can you create space for more discussion of topical issues?

D. Information, Training & Decision Making (Cont’d)

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3.0 The Key Recommendation for

Adding Value - Quality Evaluation

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Quality Evaluations 1. Evaluate committee performance regularly by

comparing activities againsti. Charterii. Leading practice

2. Assess committee dynamics, not only on what the committee does, but also on how effectively it functions

3. Evaluations should be robust - not simply a “check the box” exercise

4. Obtain feedback from board, management, internal audit, general counsel, and external auditors

Thank You For Your Attention

Please Continue Your Improvement Processes

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