In a Seminar I just attended last July 3-4, 2013 at Shangri-La Hotel, Mandaluyong City, I was pleasantly enlightened by the Briliant Speakers insights and knowlage of Corporate Governance and Internal Audit of Corporations.
Thanks to Philippine Realty & Holdings Corporation, I was given the Privilage to attend the seminar given by the Center for Global Best Practices on Board Directors’ Guide for Audit Committees.
The first day program was on Audit Commmittee Effectiveness , Our Lecturer was , Ms. Judith V. Lopez, Former Chairperson and Senior Partner of Isla Lipana & Company, a Philippine member of PricewaterhouseCoopers Global network.
Ms. Lopez made her presentation in the morning session , and we covered voluminous topics such as;
- The Audit Committee and Good Governance
- Audit Committee Roles and Responsibilities
- Assessment of Performance of Audit Committee
- Building an effective Audit Committee
- Benefits of an Audit Committiee
The Security and Exchange Commission Revised Philippine Code of Corporate Governance ( 2009) states;
” The Board Shall constitute the proper committees to assist it in good corporate governance , such as the Audit Committee. “
In summary the SEC Code states that the Key functions of the Audit Committee are;
A) To assist the Board in oversight responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations.
B) Provide oversight over Management’s activities in managing credit, market, Liquidity , operational, legal and other risks
C) Perform oversight functions over the corporation’s internal and external auditors.
D) To monitor and evaluate the adequacy and effectiveness of the corporation’s internal control system.
I learned from the lecture of Ms. Judith V. Lopez that one needs to be educated on basic accounting principles. An Independent Director and member of the Audit committee must know how to read and understand financial statements, balance sheets , and other types of financial reports.
By asking the right questions at the right time and place, is one way of being a responsible Audit member. It is good to let your presence be felt, not only seen and heard; but to be critical, focused, and discover Materiality for Judgements, decisions, and controls.
That is why, outstanding corporations, know how to follow best practices in accounting policies and new, international standards.
Successful corporations usually perform well because of good corporate governance . Like any organization , it requires leadership by example.
The corporation must adhere to a company culture of Ethical practice and professional behavior.
The owners, Board Members, Executives and Managers must practice what they preach. This is the ” soul” of Corporate Accountability. To Comply to Ethical Conduct and International Standards.
Towards the end of her presentation. Ms. Judith V. Lopez, said that ” Great Boards mean Great companies” and it is thanks to an effective Audit Committee, that the corporation complies to accurate, objective, high- performing organization with Integrity and Prestige.
In the afternoon session, we covered Audit Committees and Corporate Governance. Our very talented Lecturer was Ms. Lilian S. Linsangan, a CPA, CIA, CFE, and CCSP among other long list of achievements. She was Partner – in- charge and Head Specialist Advisory Services Division of Punogbayan & Araullo ( P& A) Philippines, and former President of Institute Internal Auditors Phil.
The question discussed was ” What is the role of Audit committees in the context of Corporate Governance”
SEC Memo Circular No. 6 , series of 2009 Revised Code of Corporate Governance defined Corporate Governance as;
” Framework of rules, systems, and process that governs the performance by the board of directors and management of their respective duties and responsibilities to the stockholders, with due regard to the stakeholders. “
A specific way to assure the implementation of best practice of corporate governance is having an Audit Committee that would implement the Assurance activities of the Management and Financial process, using both Internal and External Auditors.
The mandate of the Audit Committee begins with its composition. Normally the committee is composed of at least three directors, preferably with accounting and finance background . The chairperson should be an independent director and a member with audit experience .
The function of the Audit committee is to assist the Board, take care of Risk management and audit function oversight.
Board Assistance comes in various ways, such as ;
- Financial reporting process
- System of internal controls
- Audit process
- Monitoring of compliance with applicable laws, rules and regulations
While, Risk Management oversight , provides management with oversight gudelines as to; managing credit, liquidity, operations, legal and other risks of the corporation.
Lastly, but not the least, the Audit Committee shall undertake the Oversight of the Audit functions. This includes functions over the corporation’s internal and external auditors.
To effectively fulfill its mandate, the Audit committee shall:
A) Create it’s own Charter
B) Develop a Work Plan
C) Monitor its activities
D) Report Accomplishments
E) Evaluate the Audit’s performance
F) Undergo Continued Professional Education
New standards for Best Practice in meeting the challenges of the Audit Committee covers several responsibilities. These Key responsibilities include governance, risk management, control process, compliance and special investigations.
In essence, the Audit Committee must see to it that they take an active role, and involvement in Corporate Governance, setting Controls and basic ethical standards of conduct.
The five guiding principles for improving the Audit Commitees are:
1) Monitoring the other component parts of the Audit Process
2) Independent communication and information flow between the Audit committee and Internal Auditor
3) Information flow between the Audit committee and outside Auditors
4) Candid discussions with Management , the internal Auditor and outside Auditors regarding issues implicating Judgement and Quality
5) Diligent and Knowledgeable Audit committee membership
As an independent member of the Board of Directors of Philippine Realty & Holdings Corporation, I am happy to say that the company is determined to excel and be a key player in Property Development in the Philippines
Our Audit Committee shall Endeavor to achieve the necessary compliance set by the Security and Exchange Commission in their efforts to regulate and encourage public listed corporations in setting high ethical standards and Corporate Governance.
To end this first part, of the Seminar on Board of Directors’ Guide for Audit Committees, I wish to Propose and Suggest that the Board of Real Estate Service adapt and organize an independent Audit Committee for the AIPO which is now known as PhilRES. The incoming New Board of PhilRES. that will be elected, must Realize that having an independent Audit Committee is very important , it is an indispensable role and a grave responsibility to their Members , the Real Estate Practitioners, and the Philippine Real Estate Service Industry.
In this way the Association of Real Estate Practitioners may be assured of proper governance and self- assessment. The independence of the Audit Committee shall adopt the proper protocol in implementing standards of practice in the fulfillment of the Board of Directors Duties and Responsibilities
Next week we shall tackle Risk Management Tools for the Audit Committee.
There is so much material and voluminous areas for discussions, so all what I have done is to present a ” snap shot” profile of the Importance of having an Audit Committee in your Corporations , Associations and Organizations.