Statutory Bodies (Accounts and Audit) Act, 1972 (cont) Section 9 (1) Every board shall, as soon as practicable after the end of each financial year, furnish to the Minster a report dealing with the activities, policy and financial position of the statutory body during the year (2) The Minister shall…. lay a copy of the annual report & annual accounts before the National Assembly 51
Financial Reporting Council Act, 2004 Section 39 Where an auditor makes a report on the financial statements of an entity which he has audited, he shall express a clear written opinion in his report giving details as to whether – 52
Financial Reporting Council Act, 2004 (cont) • Section 39 (Cont) (a) the financial statements give a true and fair view of the matters to which they relate; and (b) the financial statements comply with – (i) this act, or any other relevant enactment; and (ii) the financial reporting and accounting standards 53
Financial Reporting Council Act, 2004 (cont) Section 76 (1A) Every entity specified in the schedule shall, not later than 6 months after the closing of its accounting year, submit to the CEO (of FRC) its financial statements and any related report in respect of that year. 54
Financial Reporting Council Act, 2004 (cont) Section 76 (5) • Any person who fails to comply with subsection (1A), shall commit an offence and shall, on conviction, be liable to a fine not exceeding Rs 50,000. 55
Financial Reporting Council Act, 2004 (cont) • Section 79 – Sanctions on public interest entities (1)Where ….. a public interest entity has failed to comply with the financial reporting and accounting standard, code or guideline issued under this Act, ….. the Council (i.e. the Financial Reporting Council) may issue a warning to the public interest entity or serve a notice on the public interest entity for an immediate restatement of its financial statement. 56
Financial Reporting Council Act, 2004 (cont) Section 79 (cont) (2) Any public interest entity which fails to comply with the notice shall commit an offence and shall, on conviction, be liable to a fine not exceeding Rs 1,000,000 …. 57
Accounting Section 6 – National Code on Corporate Governance • The Directors are responsible for : i) adequate accounting records ii) maintenance of effective internal control systems iii) selection of appropriate accounting policies iv) preparation of accounts which comply with IFRS 58
Accounting (cont) v) stating in the annual report that there is no reason to believe that the business will not be a going concern in the year ahead or to explain any reasons otherwise. 59
Accounting (cont) Section 75 – Financial Reporting Act Where any public interest entity is required to prepare any financial statement, it shall ensure that the financial statement is in compliance with the financial reporting and accounting standards issued by the (Financial Reporting) Council… 60
Accounting (cont) Section 72 – Financial Reporting Act The (Financial Reporting) Council shall develop financial reporting and accounting standards consistent with those of IFRS 61
Risk Management • Risk management refers to the process used by an organisation to monitor and mitigate its exposure to risk. • Risk are uncertain events that could influence the achievement of an organisation’s objectives. 62
Risk Management (cont) The Board is responsible for the total process of risk management. Management is accountable to the Board for the design, implementation and detailed monitoring of the risk management processes 63
Risk Management (cont) Risks are by nature dynamic, subject to change and often very specific to the business of each organisation. Accordingly, the day to day management of risk is best performed by operational management. However risk management is effected by the Board, management and all employees according to their defined roles in the organisation 64
Risk Management (cont) • The Board must communicate its risk management policies to management and all employees as appropriate to their roles within the organisation and must satisfy itself that communication has been effective and understood 65
Risk Management (cont) Reporting & Disclosure The Directors should include a statement acknowledging the responsibility of the Board for risk management in the Statement of Directors’ Responsibility for Internal Control. 66
Risk Management (cont) Reporting & Disclosure The statement on the risk management process shall as a minimum disclose: • The structures put in place for the identification and management of risk • The methods by which internal control and risk management are integrated together 67
Risk Management (cont) Reporting & Disclosure (cont) • The methods by which the directors derive assurance that the risk management process are in place and effective. • A brief description of each of the key risks identified and the way in which each of these key risks is managed. 68
Auditing Internal Control Internal Control is the process designed to provide reasonable assurance regarding the achievement of organisational objectives with respect to: effectiveness an efficiency of operations safeguarding of assets and data of the organisation reliability of financial and other reporting prevention of fraud and irregularities compliance with applicable laws & regulations acceptance and management of risk 69
Internal Control (cont) The Board is responsible for the system of internal control. It must satisfy itself that the system of internal controls is functioning effectively and manages risk in the manner approved by the Board • Management is responsible for the design, implementation and monitoring of the internal control system. 70
Internal Control (cont) • The Board should ensure that the Annual Report includes a statement which acknowledges the directors’ responsibilities for internal control, and • Describes the methods by which this responsibility is discharged and must as a minimum describe the following:. 71
Internal Control (cont) • The systems and processes put in place for implementing, maintaining and monitoring of the internal controls • The process by which the Board derives assurance that the internal control system are effective • The existence or otherwise of an internal audit function 72
Internal Control (cont) • Any significant areas not covered by internal controls • The Statement of Directors’ Responsibilities for Internal Control should be signed by two or more directors as representatives of the Board 73
Internal Audit • Internal audit is an objective assurance function reporting to the Board and management. • The internal audit function must remain independent of the activities audited and must be objective in their work. 74
Internal Audit (cont) • Internal audit must report at a level within the organisation that allows it to fully accomplish its responsibility. Normally the internal auditor will report to the Audit Committee. 75
Internal Audit (cont) • The internal audit function is responsible for providing assurance to the Board regarding the implementation, operation and effectiveness of internal control and risk management. • The principles of internal audit are equally applicable to the non-financial processes of the organisation and the internal function should possess an adequate range of skills to cover these processes. 76
External Audit The external audit provides an independent and objective check on the way in which the financial statements have been prepared and presented by the Directors. 77
External Audit (cont) The Director of Audit is usually appointed as the external auditor of parastatal organisations by statute. • The Director of Audit provides assurance through the expression of an independent opinion on whether the statements provide a true and fair view of the financial affairs of the particular organisation. 78
Audit Committee Principle of having an Audit Committee Every Board expects to be held to account in a variety of ways: • Accounts are published • Statements on Internal Control are made • Performance is measured • The Ombudsman may investigate allegations of misadministration etc 79
Audit Committee (cont) Principle of having an Audit Committee • Accounting Officers cannot know the detail of everything that is going on in the organisation – so they need a means of gaining assurance about what is going on, and further assurance about the robustness of the assurance mechanisms that are in place. • The main method of gaining these assurances is through an Audit Committee. 80
Audit Committee (cont) The role of Audit Committee: • The Audit Committee is appointed to support the Accounting Officer and the Board in monitoring the corporate governance and control systems in the organisation. • It has no authority in its own right, over the operations of the organisation or those bodies which conduct audit and assurance work (including Internal Audit). 81
Audit Committee (cont) Terms of Reference The Audit Committee should focus on: • The functioning of the internal control system • The functioning of the internal audit department • The risk areas of the company’s operations to be covered in the scope of the internal and external audits 82
Audit Committee (cont) • The reliability and accuracy of the financial information provided to management and other users of financial information • Any accounting or auditing concerns identified as a result of the internal or external audits 83
Audit Committee (cont) • The organisation’s compliance with legal and regulatory provisions, code of conduct, by-laws and the rules established by the board 84
Audit Committee (cont) Composition • The Chairperson of the board should not be a member of the Audit Committee • The chairman of the Audit Committee should be an independent non-executive director. • The chief executive officer should not be a member of the Audit Committee • The Audit Committee should be composed entirely of non-executive directors. 85
Audit Committee (cont) Composition (cont) • It is not a requirement that the majority of the Audit Committee be independent non-executive directors although this would be strongly recommended • All members of the Audit Committee should have financial awareness. The chairman should be skilled and experienced in financial matters. 86
Communication and Disclosure Organisations have an obligation to communi- cate with their shareholders/stakeholders through their Annual Reports. These Annual Reports (to be published within six (6) months after the close of the financial year) should be in accordance with the Code. Commercially sensitive information is not expected to be disclosed 87
Communication and Disclosure (cont) Annual Report • Annual reports should present a comprehensive and objective assessment of the activities of the organisation so that all stakeholders can obtain a full and fair view of its performance • The Board should report on the following matters in their annual report: 88
Communication and Disclosure (cont) Annual Report (cont) That: • It is the directors’ responsibility to prepare financial statements • The external auditors are responsible for reporting on whether the financial statements are fairly presented • Adequate accounting records and an effective system of internal controls and risk management have been maintained 89
Communication and Disclosure (cont) Annual Report (cont) • Appropriate accounting policies supported by reasonable and prudent judgements and estimates have been used consistently • Applicable accounting standards have been adhered to • The Code of Corporate Governance has been adhered to, or if not, to give reasons for areas of non-compliance. 90
Communication and Disclosure (cont) Annual Report (cont) • There should be a separate corporate governance section in the annual report. Among other items the following should be disclosed: • Directors’ profile including the number of other directorships 91
Communication and Disclosure (cont) Annual Report (cont) • A profile of each member of the senior management team • Related party transactions between the organization and a director, chief executive or companies owned by a director or chief executive • Total detailed remuneration per director 92
Communication and Disclosure (cont) Annual Report (cont) • Main terms of reference of board committees as well as the composition of committees. The number of times in the year the board and committees met, plus attendance details for directors. • Identification of key risks for the organization, including a brief discussion of how they are managed 93
Communication and Disclosure (cont) Annual Report (cont) • Its policies and practices as regards social, ethical, safety, health and environmental issues, and • Political and charitable donations 94
Questions ? 95
Thank you 96
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