Audit committees become more crucial for sustainability and business effectiveness - SLID and KPMG

The Sri Lanka Institute of Directors together with KPMG Ford, Rhodes, Thornton & Co. recently held a panel discussion on the topic of Exploring Audit Committee Effectiveness.

The event included presentations from several prominent industry professionals including keynote speaker Sammy Medora (a founding Partner of KPMG in India and the Chairman of KPMG’s Audit Committee Institute) and panellists Nihal Fonseka, (Chairman of the Colombo Stock Exchange), Ronnie Peiris, (Group Finance Director of John Keells Holdings PLC), Channa de Silva, (Director General of the Securities & Exchange Commission), Reyaz Mihular (Partner & Head of Advisory of KPMG Sri Lanka) and Marina Tharmaratnam (President of the Sri Lanka Institute of Directors).

The panel discussion included a multi perspective view of the role & expectations from audit committees as perceived by CEOs, CFOs, directors, regulators and external auditors as well as from audit committee members.

Many participants were of the view that the audit committee is expected to play an even more crucial role in a present day business context but were unsure about how effective current practices were in many companies which appeared to have areas for further improvement.

Audit committee, members were perceived to play a role of balancing risk & control and also emphasis was placed on the importance of having industry focused professionals in audit committee positions.

Keynote speaker Sammy Medora emphasised the importance of the audit committee which should act as a sounding board taking more of an advisory role and supporting strategic management without getting involved in operational activities.

Close interactions with internal parties such as the Chief Executive and Chief Financial Officer as well as with external auditors were seen to be crucial for strengthening audit committee effectiveness. Medora further emphasised that like many developed nations whistle blowing could also be encouraged in Sri Lanka since this could be an effective mechanism for corporate level fraud detection and prevention.

Audit committees responsibilities and powers were discussed in context of audit committee involvement in respect of:

* Discussions with external and internal auditors about internal control systems, audit scope, observations of auditors on interim and annual financial statements.

* Investigations on activity within its terms of reference and seeking of professional advice.

* Oversight of the financial reporting process and the disclosure of financial information to ensure that the financial statements are correct, sufficient and credible.

* Recommendations to the Board on the appointment, re-appointment, replacement or removal of the statutory auditor, fixing audit fees and approving payment to statutory auditors for any other services.

* Review of quarterly management and annual financial statements before submission for board approval.

* Review adequacy of internal audit function and discuss with internal auditors any significant findings and follow up.

Medora in his concluding remarks emphasised on the role the Sri Lanka Institute of Directors could play in provision of training to strengthen the knowledge and skills of audit committee members and how this could benefit the overall business community in Sri Lanka through illustrative examples of how audit committee initiatives had been implemented by professional associations and accounting firms in other countries globally.

Commenting on a regulator perspective SEC Director General Channa De Silva cited various recent regulations applied in East Asian countries and explained some of the changes to the role of the regulatory authorities required and currently taking place within Sri Lanka in line with global developments.

Both SLID and KPMG confirmed on a continued commitment towards conducting similar events in future aimed at supporting audit committees in further enhancing knowledge and effectiveness.