Audit Committee Guidelines

Transcription

1 Ô«b ó flaç a@úä ãí Zamil Industrial Investment Co. Zamil Industrial Investment Co. (Zamil Industrial) Governance Charters

2 Contents Introduction First : Audit Committee Duties and Responsibilities Second : Audit Committee Controls and Procedures of Action Third : Audit Committee Members Responsibilities Fourth : Remuneration Fifth : Terms of Reference of Committee Chairman, Vice-Chairman and Secretary Sixth : Committee Meetings Seventh : Recording Committee Meetings Eighth : The Committee s Action Plan and Reports Ninth : Delegated Powers and Authorities 1 of 14

3 Introduction The Board of Directors is responsible for ensuring the existence of an efficient internal control system, while the Audit Committee is responsible for continuous monitoring and internal evaluation of that system and for making timely and practical suggestions for improvement to achieve the goals of the company and protect the interests and rights of all shareholders and investors with high efficiency and reasonable cost. The Committee may, with no restrictions, have access to all information, data, reports, records, correspondences or other matters which the Committee may consider important to access. The Board of Directors therefore shall take all necessary measures to ensure that the Committee carries out its duties. First: Audit Committee Duties and Responsibilities The primary responsibility of the Audit Committee is assisting the Board in carrying out its tasks and responsibilities relating to the company s financial and accounting policies, internal control procedures, and accuracy of financial reports. In this sense 10 major duties are included in the Audit Committee Charter: 1. Supervision of the management of the company s internal audit department, in order to assess its degree of effectiveness in executing the tasks assigned to it by the Board of Directors and to provide advice in the case of appointing or terminating internal auditors services. 2. Study the internal audit reports and follow up the execution of the rectifying procedures of the observation that have been outlined. 3. Study of the internal control system and preparation of a written report including the Committee s views and recommendations. 4. Recommend to the Board of Directors the appointment of the external auditors, their termination and determine their remuneration, taking into consideration their independency in case of appointment. 5. Follow-up the external auditor s work. 6. Review the audit plan with external auditors and outline its comments. 7. Study the external auditor s observation on the financial statements and follow up the actions taken in the matter. 8. Formation of the link between the external auditor and the Board of Directors. 9. Analysis of quarterly and annual financial statements prior to presenting them to the Board, as well as provision of supporting remarks and recommendations in this regard. 10. Inspection of the adopted accounting policies and provision of views and recommendations regarding these policies to the Board of Directors. 2 of 14

4 1. Supervision of the management of the company s internal audit department 1.1 The Audit Committee is responsible for verifying the independence of internal auditors, studying the action plan of the internal audit department in the company and the scope of assessment and reports issued by it, and submitting proposals which would confirm the independence of internal auditors and increase the efficiency of their tasks and duties at a reasonable cost. The Committee shall be a liaison between the Board and the internal auditors. 1.2 Review the periodic reports of the internal audit department, which highlight the department s key results and recommendations. 1.3 Review the Internal Audit Charter and adjustments and document the administrative approvals that show the objectives, authorities and responsibilities of internal audit to ensure that internal auditors are carrying out their responsibilities. 1.4 Invite the internal auditors to attend the Audit Committee s meetings at least once a year to discuss audit plans and any other matters the Committee may consider. The Committee is also entitled to invite the internal auditors at any time to discuss any other matters related to internal audit. 1.5 Review the nomination applications for the post of General Auditor in the company, as well as bonuses, allowances and other benefits allocated to this position, and nominate the most suitable candidate for this position while declaring the reasons behind the selection. Look into the termination of the General Auditor, whether due to resignation, disability or exemption, and submit a report of the Committee s recommendations to the Board. 1.6 Internal audit can be used as a source of information for the Audit Committee in cases of major and unusual embezzlements as well as for implementation of the legal aspects of the company. 2. Study the internal audit reports and follow up the execution of the rectifying procedures of the observation that have been outlined 2.1 Review major and important observations raised by internal audit and the status of implementation of recommendations, and report to the Board. 3. Study of the internal control system and preparation of a written report including the Committee s views and recommendations 3.1 Assess the adequacy of control activities design at the company to ensure that these control activities will reduce fraud and errors and detect them when they occur, and ensure that such control activities have been implemented efficiently and consistently. 3 of 14

5 3.2 Supervise investigations related to fraud or errors that take place in the company or any other matters which the Committee considers important and worth investigating. 3.3 Ensure that the company does not violate any regulations or laws in force in the Kingdom of Saudi Arabia. 4. Recommend to the Board of Directors the appointment of the external auditors, their termination and determine their remuneration, taking into consideration their independency in case of appointment 4.1 The Audit Committee nominates five licensed auditing companies that have the ability to audit public companies efficiently and effectively, in order to be invited to audit the company s financial statements. 4.2 The Committee shall determine the scope of the audit, which should include the following: Evaluate the internal control system, including the accounting system from both theoretical and applied perspectives Perform tests on selected samples from the financial operations of the company Contact debtors and creditors of the company or other parties to verify balances or for other purposes Assess control of inventories, including those in the branches and active projects of the company. 4.3 Ensure commitment to the auditing standards adopted in the Kingdom of Saudi Arabia to verify that the financial statements as a whole fairly present the financial position of the company and the results of its operations for the fiscal year ended on that date, in light of the presentation and disclosure of information contained in the financial statements in accordance with generally accepted accounting principles, and appropriate to the situation of the company. 4.4 Ensure consistency with the requirements of the company s by-laws and Articles of Association concerning the preparation and presentation of financial statements. 4.5 Notify the management in writing of the accountant s comments while performing the review. 4.6 The management shall invite the external auditors to submit proposals The management of the company shall invite the external auditors who have been nominated, and the invitation should include the scope of the task, in addition to the conditions and obligations that the company 4 of 14

6 deems necessary for the completion of the review process. The Board of Directors should allow these accountants to access the data and explanations they require in order to identify the volume and nature of the company s operations. Each external auditor should present his proposal to audit the company s financials and a brief profile about his organization, including, in particular, the following: The names, nationalities and professional qualifications of the team members who will review the company s financials A statement of quality control procedures used in the accountant s organization The parties whom he intends to use for the purposes of the audit of the company s financials (if any), the aspects they would participate in, the nature of their participation, and qualifications and experiences of the individuals who will be hired in this regard The previous experience of the auditing company in reviewing the accounts of similar companies A list of the branch offices and the number of professional staff who work at each The number of hours scheduled for each member of the team (partner, review manager, etc.) The relationship between the external auditor or the auditing team who will review the financials and the members of the Board of Directors (if any); and the business relationship between the external auditor and the company or any member of the Board of Directors (if any) The expected delivery date for the accountant s report on the financial statements of the company Audit fees. The terms and conditions of selection and appointment of external auditors General conditions Licensed to operate in Saudi Arabia. Proven experience of not less than 15 years in auditing of joint stock or limited liability companies financial statements. Have at least 50 local professional staff. 5 of 14

7 Academic and practical qualifications of owner/partners Academic and practical qualifications of audit managers and supervisors Academic and practical qualifications of IT and information systems review manager Quality control Kindred relationship Have a dedicated department to review IT and information systems or use the services of specialized external companies. Have three main branches in the Eastern, Western and Central regions of the country. Have audited the financials of several joint stock and limited liability companies during the past three years where each company s capital is at least 150 million Saudi riyals and one of them is an industrial company. A doctorate or master s degree or professional accreditation in accounting or auditing (CPA or CIA). Work experience of not less than 20 years in auditing. A postgraduate professional degree from the Kingdom of Saudi Arabia or abroad or professional accreditation in accounting or auditing (CPA or CIA). Work experience of not less than 10 years in auditing of joint stock or limited liability companies. A postgraduate professional degree in IT or professional accreditation (CISA). Work experience of not less than 5 years in reviewing IT and information systems at joint stock or limited liability companies. The work should be reviewed by a partner who is not directly involved in the auditing process. The activities and services should be reviewed every three years by an accredited international accounting firm. The company/firm must have been reviewed by the Saudi Organization for Certified Public Accountants (SOCPA) with satisfactory results. The owner, partners or any member of the audit team must not have direct or indirect kindred relationships with the members of the Board of Directors or the members of Executive Management, expressed in a written avowal that should be submitted upon selection. Note: The firm shall be excluded from the competition in case of noncompliance with the above-mentioned terms and conditions. 4.7 Analysis of offers The management of the company shall prepare a table comparing the offers made by the external auditors, in accordance with the data referred to in Article 12, and submit it to the Audit Committee accompanied with the offers and information of the external auditors. 6 of 14

8 4.7.2 The Committee shall study the comparative table, the offers and the information attached to them and invite the review team of each firm individually to a meeting to discuss their offer in light of the terms and conditions set forth above The Committee shall prepare a memorandum that will be presented to the Board showing the summary analysis of the submitted offers and nominate one or more external auditors to audit the company and clarify the rationale for that nomination The Board of Directors shall propose to the General Assembly the recommendation submitted by the Audit Committee indicating the names of the external auditors, their auditing fees and the rationale for their selection. The General Assembly shall appoint one or more external auditors to review the company s financial statements and determine the accountants remuneration and duration of their work The auditing period must not exceed five continuous years, and two years must pass before the same auditing firm can audit the company s financials. The auditing period begins on 01/01/1426H or 10/02/ Revision of audit plan with external auditor and provision of accompanying remarks 5.1 Review the plan put forth by the external auditor and ensure that it covers the legal and professional requirements of all aspects of the activities. 6. Follow-up the external auditor s work 6.1 Follow up on the work of external auditor to ensure proper implementation of the audit plan and the terms of the contract. Special assistance can be provided by internal audit in this process. 7. Study the external auditor s observation on the financial statements and follow up the actions taken in the matter 7.1 Review the external auditor s observations report, discuss it and follow up with management to ensure the proper implementation of the recommendations; submit a report to the Board of Directors with the most important observations and recommendations stated in the accountant s report. 8. Formation of the link between the external auditor and the Board of Directors 8.1 Ensure that the external auditor obtains all necessary information and work to overcome obstacles in coordination with management and internal audit; inform the Board about all matters relating to contract execution and the continuity of the work in a proper manner. 7 of 14

9 8.2 Review the audit scope of work proposed by the external auditor and the implementation plan, and ensure that there are no unjustified restrictions or limits to implementing the scope of the auditing process. 8.3 Review the performance of the external auditor. 8.4 Verify the independence of the external auditor and that there are no other consultancy services mandated to him by other parties during the year. Verify that the professional services provided by the external auditor are limited to review of the financial statements of the company and other professional services provided by the external auditor to the company as specified in the contract. The Committee may also suggests termination and replacement of the external auditor, while stating the reasons, and the external auditor has the right to claim compensation for any harm or damage due to his replacement, in case the replacement has happened at an inconvenient time or for any other unacceptable reason. 8.5 Set a special meeting with the external auditor to discuss any matters the Committee or external auditors believe should be discussed in person. 8.6 Ensure that important observations and recommendations provided by the external auditor are received and discussed at the appropriate time. 8.7 Ensure that management responds to the recommendations of the external auditor. 8.8 The Committee shall submit its proposals and recommendations to the Board for review and approval. 8.9 Ensure that the Board is informed of all matters that largely affect financial status and administrative affairs. 9. Analysis of quarterly and annual financial statements prior to presenting them to the Board, as well as provision of supporting remarks and recommendations in this regard 9.1 Review the annual budget and ensure its completeness and consistency with generally accepted accounting principles and that it reflects the actual financial position of the company. 9.2 Pay attention to extraordinary procedures such as accounting reclassification and irregular titles. 9.3 Focus on critical areas such as assessing assets, liabilities and guarantees; environmental responsibilities; cases brought against the company and reserves; and other and urgent commitments. 9.4 Set a meeting between the administrative staff and external auditor to review the annual budget and auditing results. 8 of 14

10 9.5 Monitor the periodic financial reports generation process by management and the roles of internal and external audit in reviewing the information contained therein. 9.6 Evaluate the fairness of the periodic financial reports and explanations contained therein and ascertain, with input from management, the internal auditor and the external auditor, whether: - The differences in financial ratios are in line with changes in the company s operations and financial practices. - Generally accepted accounting principles are being implemented in a permanent manner. - There are any extraordinary events or procedures. - The internal control financial and administrative systems are still performing their roles efficiently. - The periodic financial reports contain information that is sufficient and appropriate to be published. 9.7 Understand the financial risk areas and how they should be managed efficiently by management. 9.8 Discuss with the internal and external auditors any fraud, illegal acts, lack of internal control or any other similar issues. 9.9 Review the reports, important accounting matters, and any instructions or directives issued by the relevant professional, legal or regulatory authorities and their impact on the budget Check with management, the General Auditor and the external auditor on the most important risks, their impact and the proposed plan to reduce those risks Discuss with management and the external auditor the financial performance of the company, including the quarterly and annual financial statements Review the annual report prior to publishing and ensure that the information is clear and consistent with the knowledge of Board members about the company and its operations, and review any legal issues that may affect the financial position of the company. 10. Inspection of adopted accounting policies 10.1 The Committee shall study the accounting policies to be adopted by the company prior to approval or modification and submit its proposals concerning those policies, taking into account the suitability of the accounting policies to the nature of the company s business and their impact on the financial position and business results of the company. 9 of 14

11 Second: Audit Committee Controls and Procedures of Action 1. The Committee shall select a Chairman from among its members. It may select a Secretary from among its members or others to prepare minutes for its meetings and be in charge of administrative work of the Committee. 2. The Committee shall convene upon a call from its Chairman. The Committee meeting shall be valid only upon attendance of at least half the number of members. The Committee members may not delegate someone else to attend the meetings on their behalf. The Committee s decisions shall be made by a plurality of votes of the participants. The Committee s discussions and decisions shall be recorded in minutes signed by the Committee Chairman and Secretary and shall be kept on file in a special record. A Committee member is deemed resigned if he does not attend the Committee meetings for more than three consecutive sessions without an acceptable reason. 3. The Committee member may not take part in any work competing with the company and may not practice any of the business areas of the company, or else the company shall be entitled to claim compensation or deem the operations carried out by him for his own account to be carried out for the company s account. 4. The Committee member, just as a member of the Board of Directors, shall be required to maintain the company s secrets. The Committee members may not disclose any work-related information to shareholders or a third party or else they shall be dismissed and obliged to pay compensation. Third: Audit Committee Members Responsibilities 1. Regularly attend the Committee sessions and actively participate in its actions. In the event of an emergency that entails absence from one of the Committee sessions, the member shall notify the Chairman of the Committee in writing. The member may not, under any circumstances, leave the session before it is adjourned unless pursuant to permission from the Chairman of the Committee. 2. Maintain the company s secrets. The Committee member may not disclose to the shareholders, unless in the General Assembly, or to a third party the company s secrets as a result of his job or else he will be replaced and required to pay compensation for the resulting damage. 3. Not perform any executive functions in the company. 4. Maintain the necessary efficiency to perform the assigned functions and apply the latest developments relevant to the company s work. 5. Be fair; apply transparency, honesty, objectivity and independence at work; not act in self-interest; not judge based on the opinions of others; not disclose untrue information knowingly. 10 of 14

12 6. Not knowingly engage in any actions or activities that are deemed to ruin the reputation of the profession or company to which he belongs. 7. Not engage in any activity that may conflict with the interest of the company or may impair his ability to perform his duties and responsibilities objectively. 8. Not accept a valuable gift from an employee, subject, client, supplier or anyone in connection to company work that may lead to impairing the independence of the Committee member in form and in subject or may affect or be assumed to affect the decisions he makes. 9. Disclose to the Board of Directors the transactions made between him and the company and the nature of the relationship, and disclose the relationship he has with the Board of Directors and executive managers in the company. 10. Sign a declaration by virtue of which he states his independence according to the form approved by the Department of Corporations in the Ministry of Commerce. Fourth: Remuneration 1. The Committee member shall have remuneration commensurate with the time and effort exerted. The remuneration shall be in the form of payment for attending each of the Committee meetings and shall not exceed the stipulated amount for members of the Board of Directors in this capacity, plus a certain amount for each hour spent by the member outside the Committee meetings for committee-related work, plus reimbursement for the actual expenses incurred for tasks related to performing his job duties. 2. The Board of Directors report must disclose to the General Assembly the remunerations and other benefits disbursed to the Committee members. Fifth: Terms of Reference of Committee Chairman, Vice-Chairman and Secretary 1. The Committee members shall choose a Chairman from among them for the membership term of the Committee. The Chairman of the Committee shall supervise the completion by the Committee of its responsibilities and duties, and in particular: 1.1. Call the Committee to convene and set the time, date and venue for each Committee meeting; create the agenda in coordination with the Committee members Chair the Committee meetings Send the Committee work results and recommendations to the Board Create the Committee budget, action plan and projects in the short and long run in coordination with the Committee Secretary and impart them to the Committee in preparation for sending them to the Board of Directors upon approval from the Committee. 11 of 14

13 1.5. Draft periodic reports about the Committee activities in coordination with the Committee Secretary and impart them to the Committee in preparation for sending them to the Board of Directors upon approval from the Committee Represent the Committee before the Board and any other entity when necessary. 2. The Chairman may choose from among the Committee members a Vice-Chairman for the Committee membership term so that he may assist the Chairman in performing his duties and responsibilities and act on his behalf in his absence, provided he is not one of the Board of Directors members appointed to the Committee. 3. The Committee Secretary appointed by the Committee and whose remuneration is determined by the Committee shall attend the Committee meetings without having the right to vote. He shall prepare minutes of the meetings, send times of sessions and agenda to members, and perform all Committee-related administrative work. The Committee Secretary should have the academic qualifications and expertise necessary for him to perform his assigned duties. The Committee Secretary shall maintain the company s secrets and abstain from performing any activity that may conflict with the company s interest. Sixth: Committee Meetings 1. The Committee shall adopt the schedule of its meetings before the beginning of each fiscal year; in addition, each future meeting will be confirmed and agreed to at the prior meeting. 2. The Committee shall hold a periodic meeting at least every three months and shall invite members at least one week in advance. The meeting agenda and documents shall be enclosed with the invitation. The quorum is the majority of members. 3. In addition to No. 2 above, the Committee shall convene if the Committee Chairman, two of its members, the external auditor, the internal auditor or the Board of Directors request it. 4. The Committee must meet at least once per year with the external auditor of the company, executive managers, Board of Directors and internal auditor (individually) to discuss issues relevant to the duties and responsibilities of the Committee, including the quarterly and annual financial reports of the company. 5. The decisions and recommendations of the Committee shall be issued by plurality of votes of participants. In the case of an equality of votes, the Chairman shall cast the deciding vote. Members may not abstain from voting or delegate their vote. 6. Any member may have reservations against a decision made by the Committee provided he gives the main reasons for his reservation. If a member leaves the Committee meeting before it adjourns, his reservation, if any, shall apply only to decisions made in connection with the items for which he attended discussion; the items for which he did not attend discussion shall be noted in the minutes if he expressed his desire in writing in this regard. 12 of 14

14 Seventh: Recording Committee Meetings Minutes of the Committee meetings shall be recorded as follows: 1. During the meeting, the Committee Secretary shall take notes on major discussions and, upon the end of discussing any issue, shall summarize the recommendations or decisions made. 2. The Committee Secretary shall create a draft of minutes for each of the Committee meetings in which he records the date and place of the meeting, names of attendees and absentees, a summary of the discussions, and transcripts of recommendations and decisions made by the Committee. The draft shall be sent to the Committee Chairman for approval. 3. The draft minutes shall be sent to all members, who shall be asked to furnish the Committee with any remarks they have within one week of receipt. 4. The draft minutes shall be amended in light of the remarks received from the members and sent to the Chairman along with the remarks. 5. In light of instructions from the Committee Chairman, the minutes shall be recorded in a final copy and sent to the members, signed by the Committee Chairman and Secretary, and members shall be asked to provide the Committee with any remarks they might have. 6. If any fundamental remarks were received from the members, they shall be included in the agenda of the following meeting. 7. The signed copy of the minutes shall be kept in a special folder along with all related documents and correspondences. Eighth: The Committee s Action Plan and Reports 1. At least three months before the beginning of each fiscal year, the Committee shall draft an annual plan including a description of the works it shall perform during the following year along with estimated costs and necessary time period to complete each program. This plan shall be submitted to the Board of Directors for approval. 2. The Committee shall submit periodic reports to the Board of Directors and an annual report to the General Assembly of the company, including the works it performed and their results, as well as the violations or errors detected by the Committee or weaknesses in the design or implementation of the internal control system in the company. The report shall include the recommendations of the Committee to address deficiencies in order to develop an effective internal control system in the company. The Committee should be cautious when drafting its reports to avoid the occurrence of any deliberate illegal actions, fraud or errors in the financial reports drafted by the company. The Committee shall be alert to any opportunities or cases that may allow the occurrence of such actions, such as failure to comply with control procedures, provision of unjustified exemptions to an individual or entity, and the presence of unusual losses. In the event of any such cases, the Committee shall consider the 13 of 14

15 need to have a legal adviser or other adviser study the case and give his opinion in this regard. Ninth: Delegated Powers and Authorities To enable the Audit Committee to carry out its responsibilities, the Board of Directors delegates certain authorities to the Committee. The Committee is authorized to: 1. Obtain the required information from: The company s staff (all employees should cooperate with the Committee and provide it with any requested information). Professional and legal consultants from within the company or outside it. Any external entity. 2. Invite concerned company staff to attend Committee meetings for discussions whenever necessary. 3. Seek the assistance of consultants and specialized experts for helping it in evaluating studies and plans presented to it. 14 of 14