Hubert Rampersad

“In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. If you don’t have the first, the other two will kill you. If you hire somebody without integrity, you really want them to be dumb and lazy”. ― Warren Buffett

Following up on my previous article:

Terms of Reference of the Audit Committee

The Audit Committee should adopt a written charter which shall, at a minimum, state the purpose, membership, responsibilities, structure, authority, and performance evaluation processes of the committee.

Chairman of the Audit Committee

The board must appoint one member of the Audit Committee as Chairman of the Audit Committee. A strong chair demonstrating depth of skills and capabilities is a key element for a successful committee, and so its selection should be undertaken with due care and consideration. The Audit Committee Chairman should assume, amongst others, the following responsibilities:

· Planning and conducting meetings.

· Overseeing reporting to the board.

· Encouraging open discussion during meetings.

· Developing and maintaining an active on-going dialogue with senior management and both the internal and external auditors.

Audit Committee Meetings

· Frequency: Best practices recommend that Audit Committees should meet at least four times a year with preferably one meeting per quarter. A meeting of the Audit Committee should be held upon direction by the chairman of the committee but can also be scheduled if requested by external auditors or the head of internal audit.

· Agenda: Each meeting should have a defined agenda approved by the Chairman of Audit Committee. This would help the committee members to stay focused during the meeting. Where necessary, the agenda should include input from the CEO, Finance Director, the internal and/or external auditors.

· Meeting Papers: As a matter of good practice, the committee members should be provided with a meeting agenda and relevant papers at least a week in advance of the meeting. This will allow the members to thoroughly review all pieces of information prior to the meeting, enabling them to effectively discuss each agenda item during the meeting.

· Participants: Depending on agenda matters, Audit Committee members may decide to meet in privacy without presence of any other person; or may invite guests like internal auditor, external auditor, company’s Chief Financial Officer, Chief Executive Officer, Chief Operating Officer, Chief Risk Officer, or others as deemed necessary. Appendix 8 lists some issues that should be raised and discussed with executive management, external and internal auditors.

· Duration: Sufficient time should be allocated to Audit Committee meetings so that each agenda item can be discussed in adequate detail.

· Report to Board/ Shareholders: Details of the Audit Committee’s activities, number of audit meetings held in a year and attendance of each individual director in respect of the meetings should be disclosed in company’s annual report. This enables shareholders to evaluate the commitment of a particular director. In addition, in each board meeting, the Chairman of the Audit Committee should brief board members on significant items discussed in the Audit Committee meeting.

· Minutes of Meeting: All proceedings of Audit Committee meetings should be recorded in form of minutes of the meeting. An Audit Committee secretary should be appointed to record all matters discussed in the meeting. The minutes of the Audit Committee meetings are considered legal documents and should be retained for as long as the applicable regulatory bodies require.

Audit Committee Secretary

The Audit Committee secretary plays an important role in organizing Audit Committee meetings, and providing assistance to committee members with regards to their queries on organization matters. Typical set of responsibilities perform by Audit Committee secretary include:

· Ensure meetings are arranged and held accordingly.

· Assist the Chairman in planning the Audit Committee’s activities.

· Draw up meeting agendas in consultation with the Audit Committee Chairman, maintain the minutes, and draft its scheduled activities for the financial year.

· Ensure structured communication channels between the board and the Audit Committee.

· Ensure proceedings of meetings are recorded and the minutes are circulated to and confirmed by the Audit Committee Chairman before disseminating them to the board.

· Ensure Audit Committee recommendations presented to the board are supported by papers, including minutes that explain the rationale for the committee’s recommendations.

This article will be continued in the next part of this column.

Hubert Rampersad

Hubert Rampersad is president at Business School of the Americas. This column is drawn from his new book “Authentic Governance; Aligning Personal Governance with Corporate Governance” (Hubert Rampersad & Saleh Hussain, Springer USA, New York, 2013). He can be reached at ; | His books | His interviews in BusinessWeek & Fortune Magazine | His You Tube Video

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