Audit, Risk and Internal control

Question 1

What does principle M say on policies and procedures?

Answer 1

Formal and transparent policies and procedures should be in place to ensure independence and effectiveness of internal and external audit functions and to satisfy itself on the integrity of financial and narrative statements

Question 2

What does principle N say about the Board in relation to its assessment of the company’s position and prospect?

Answer 2

Board should present a fair, balanced and understandable assessment of the company’s position and prospects

Question 3

What does principle O say on procedures relating to this section of the code?

Answer 3

Board should establish procedures to manage risk, oversee the internal control framework and determine the nature and extent of principal risks to achieve long term objectives

Question 4

What is the composition of the audit committee?

Answer 4

Establishment of an audit committee of independent NEDs, with a minimum membership of 3 (2 for smaller companies). The chair of the board should NOT be a member, at least one member has recent and relevant financial experience, committee as a whole should have competence relevant to the company’s sector

Question 5

What are the main roles and responsibilites of the audit committee?

Answer 5

1. Monitoring the integrity of financial statements and formal announcements relating to financial performance;
2. Advice on whether the AR is fair, balanced and understandable;
3. Reviewing the company’s internal financial controls and risk management systems;
4. Monitoring the effectiveness of the company’s internal audit function;
5. Conducting the tender process of an external auditor and reviewing their independence;
6. Developing and implementing policy on the engagement of the external auditor to supply non-audit services

Question 6

The annual report should describe the work of the AC including…

Answer 6

1. The significant issues that the AC considered, and how these were addressed;
2. Explanation of how it has assessed the independence and effectiveness of the external audit process and the approach taken to the appointment/reappointment of the external auditor;
3. If the board refuses it’s recommendation on external auditor, reasons why the board took a different position;
4. Where there is no internal function – explain why and how internal assurance is achieved;
5. How auditor independence is safeguarded when the auditor provides non-audit services

Question 7

What does provision 27 say on accounts?

Answer 7

Directors should explain in the AR their responsibility for preparing the accounts and that the accounts were taken as a whole, is fair, balanced and understandable, and provides the necessary info to shareholders to assess the company’s position

Question 8

What does provision 28 say on risks?

Answer 8

Board should carry a robust assessment of the company’s emerging and principal risks. Board should confirm in AR that it has completed it’s assessment, including the description and procedures to identify risks and how they are mitigated

Question 9

How often should the board adopt a going concern basis?

Answer 9

In annual and half-yearly financial statements, the board should state whether it considers it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to the company’s ability to continue to do so over a period of at least 12 months from the date of approval of FS