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The Stock Exchange of Hong Kong Limited requires companies listed on the Main Board and the Growth Enterprise Market (“GEM”) to establish an audit committee. The audit committee of the board of directors plays a role critical to the integrity of the company’s financial reporting. The audit committee should exercise vigilant and informed oversight of the financial reporting process, including the company's internal controls. The publications relating to the audit committee are as follows: Hong Kong October 2003
30 April 2003
US
December 2003
November 2003
May 2002
March 2002
UK
May 2004
January 2003
___________________________________________________ Shaping the UK Audit Committee Agenda
Corporate governance excellence continues to be an important element of UK business. Expectations of stakeholders in the corporate governance process, including financial reporting, have never been higher, and the scrutiny by regulators and investors never more stringent. As a consequence, the role of the audit committee has rapidly increased in importance and expanded in scope. Today, audit committees are being asked to assume responsibilities well beyond their traditional duties.
Audit Committees – A More Visible and Demanding Role
An article written by ACI executive director Mark C. Terrell and partner Scott A. Reed, provides insight on the challenges that audit committees face; highlights the most significant changes that affect audit committees; describes the framework necessary for effective audit committee oversight; and suggests that audit committee oversight is an important element of the financial reporting process. This article is part of a guide containing a collection of articles on the state of corporate governance one year after the enactment of the Sarbanes-Oxley Act of 2002 (S-O). This publication was also sponsored by the National Association of Corporate Directors (NACD).
The Changing Roles of Audit Committees In a recent article, KPMG Chairman and Chief Executive Officer Eugene O'Kelly discusses the changing role of audit committees, the impact of the audit committees' new responsibility to "directly oversee" the independent auditor, and provides a description of the priorities and concerns audit committees face regarding proactive oversight, strengthened communication, and enhancement of knowledge and independence.
Nowhere is the speed of change more evident than in the boardroom. Not many would have predicted that changes in investor protection and accounting and reporting reform would occur so quickly and with such global reach. The audit committee is at the frontline of this change. Charged from the beginning with important and challenging responsibilities, the changes in technology, communications, cultural customs, regulation and stakeholder sentiment are placing even greater demands on the audit committee and other directors, within an environment of ever increasing scrutiny.
Clearly, directors need to find a way to cut through the clutter surrounding current and emerging issues and become better equipped to actually deal with the real issues. The Guide aims to help all directors do this, but particularly those who serve on audit committees.
___________________________________________________ An Approach to Effective Audit Committee Self-Evaluation Audit committees are faced with increased expectations from many groups, including shareholders, shareholder and governance activists, regulators, the media, and fellow board members. The purpose of this document, An Approach to Effective Audit Committee Self-Evaluation, is to suggest a straightforward evaluation approach for the audit committee based on some of the broad expectations of shareholders, the ultimate group whose interests the board and the audit committee represent. We have based this approach on ACI's Basic Principles for Audit Committees (see below).
We encourage the members of the audit committee to consider the elements included in this document, as well as other approaches, and then develop their own tailored approach to evaluating the effectiveness of their audit committee.
___________________________________________________ KPMG's Corporate Governance series in the SCMP: Part three of four – Audit Committees – Back to Basics Although there are generic "best practices" in setting up an audit committee, each audit committee should be careful in adopting them to avoid the common pitfall of using a one-size-fits-all approach. Audit
Committees –
Back to Basics _______________________________________________________ A Guide for Effective Audit Committee In view of the growing recognition of the importance of sound corporate
governance, the HKSA formed an Audit Committee Guide Review Task Force
in mid-2001 to review and update the 1997 "Guide for the Formation
of an Audit Committee. Consequently, the HKSA issued "A Guide
for Effective Audit Committees" in early 2002. For further
information on the publication, please visit www.hksa.org.hk. _______________________________________________________ Basic Principles for Audit Committees Much of the current debate and dialogue offers recommendations and best practice for improving the effectiveness of the audit committee in overseeing a company's financial reporting process. While such advice is well-intentioned, the Audit Committee Institute ("ACI") urges caution in attempting to adopt generic best practice. To help foster knowledge sharing and awareness, the ACI has developed five Basic Principles for Audit Committees ("Basic Principles"). These were highlighted during the Spring 2002 Audit Committee Roundtable series. The overview of these Basic Principles was finalized a week before the New York Stock Exchange issued its Corporate Accountability and Listing Standards proposals, which address a variety of issues that will impact audit committees in the future. We encourage corporate leaders to consider the ACI's Basic Principles for Audit Committees to help provide the foundation for, and the framework within which each audit committee develops and adopts its own best practices that support its independent and objective oversight of the financial reporting process. Sharing of these Basic Principles with others who are interested in the audit committee process are also welcome. Please contact the HKACI at hkaci@kpmg.com.hk with any questions or comments.
Shaping the Audit Committee Agenda Shaping the Audit Committee Agenda was originally published by KPMG soon after the release of the report of the 1999 Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees. This book from KPMG continues to be a valuable resource for audit committees considering their role in the overall corporate governance structure. Please contact the HKACI at hkaci@kpmg.com.hk with any questions or comments.
KPMG's Audit Committee Institute Highlights – Reflecting On The Past; Focusing On The Future The Audit Committee Institu te (“ACI”) reflects KPMG's commitment to communicating with audit committee members and other participants in the financial reporting process. Effective oversight of the financial reporting process depends upon strong and well-informed Audit Committee Members, while effective corporate governance depends on the active and collaborative participation of all of its principal champions. We encourage you to make full use of the ACI to remain informed about today's critical issues relating to corporate governance and audit committee. Please contact the HKACI at hkaci@kpmg.com.hk with any questions or comments.
Financial Reporting Council – Guidance for Audit Committees (Smith Report) Following the July 2002 report by the Government appointed Coordinating Group on Audit and Accounting Issues, the Financial Reporting Council appointed Sir Robert Smith to lead a small group to develop the existing guidance for Audit Committees. His report was issued at the same time as the Higgs report on 20 January 2003. There will be a 'fatal-flaws' consultation period ending 14 April 2003 following which a revised Combined Code will be finalized and listed companies will have to state the extent of their compliance with the revised Combined Code for accounting periods starting on or after 1 July 2003. The full report is available at: http://www.frc.org.uk/publications.html A summary of the guidance is available below.
The KPMG Review – Internal Control: A Practical Guide The objective of the report is to provide guidance for directors of listed companies incorporated in the UK, on the implementation of internal control recommendations set out in the Combined Code. It also seeks to reflect sound business practices that can be adapted to the particular circumstances of individual companies.
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