6. ceo cfo certification

8/9/2019 6. CEO CFO Certification

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Origin

• The collapse of Enron and WorldCom

• June 2002


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Amendments (1)

• They have reviewed the balance sheet and profit and loss account and all

its schedules and notes on accounts, as well as the cash flow statements

and the Directors !eport"

• These statements do not contain any materially untrue statement or omit

any material fact nor do they contain statements that mi#ht be

misleadin#"

• These statements to#ether present a true and fair view of the company,

and are in compliance with the e$istin# accountin# standards and % or

applicable laws % re#ulations"


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Amendments (2)

• They are responsible for establishin# and maintainin# internal controls and

have evaluated the effectiveness of internal control systems of the

company" and they have also disclosed to the auditors and the &udit

Committee, deficiencies in the desi#n or operation of internal controls, if

any, and what they have done or propose to do to rectify these'

• They have also disclosed to the auditors as well as the &udit Committee,

instances of si#nificant fraud, if any, that involves mana#ement or

employees havin# a si#nificant role in the companys internal control

systems" and• They have indicated to the auditors, the &udit Committee and in the notes

on accounts, whether or not there were si#nificant chan#es in internal

control and % or of accountin# policies durin# the year'


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ELEMENTS OF THECERTIFICATION PROCESS

• The “Material Fact”

• “Fairly Present” Assessments

• Controls• Supporting Processes

• Governance and audit


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The “Material Fact”

• (nowled#e

) *nternal

) E$ternal

• Transparency and critical issues


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THE PRIVATE / PUBLIC DISCLOSURE

BOUNDARY


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M l i h i


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Multi-step approach inmaking these assessments:

• Ensurin# the financial statements are in compliance with &+

• Ensurin# the D-& is properly presented

• +atisfyin# the re.uirements in the annual filin#, and

• +tandin# bac/ and assessin# whether the reportin# pac/a#e as a whole

fairly presents1 the financial condition, results of operations and cashflows, in addition to concludin# that the filin#s do not contain any untrue

statement of a material fact or omit to state a material fact re.uired to be

stated'


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FINANCIAL STATEMENTS

CEs and C3s may wish to consider the followin# .uestions in ma/in# their fairly present1 and material fact1 assessments'

• &re the accountin# principles used for ma4or transactions, arran#ements or events inthe period the most appropriate1 in the circumstances, or would they li/ely beviewed as less preferable

• *s the materiality threshold used in the preparation of the financial statementsreasonable5 What errors were detected by mana#ement or the auditors in the

preparation process, but not included in the financial statements because they wereconsidered immaterial5

• Does the accountin# treatment and related disclosure for ma4or transactions,arran#ements or events in the period reflect their economic substance and portraytheir economic reality5 *f not, have the financial statements been corrected inaccordance with &+ and has additional interpretative disclosure been included, as

necessary, in the D-&5• What is the de#ree of conservatism in the more si#nificant accountin# 4ud#ments

and estimates, revenue reco#nition criteria, etc'5 6as the de#ree of conservatismchan#ed from prior periods5

• Do the accountin# estimates and 4ud#ments made in preparin# the financial

statements reflect any trends or biases that would consistently overstate orunderstate /ey amounts5


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• What is the .uality of the assets recorded on the balance sheet5 What assetimpairment assessments have been made or considered in the period5

• What revisions to estimates were made in the period5 6ow si#nificant is the impactof such revisions on earnin#s5 6ow do reported earnin#s compare with reportedcash flows5 What is the impact of one time1 #ains and losses on earnin#s in the

period5 6ow does this compare with prior periods5 What is the overall .uality1 ofearnin#s 7i'e', how conservative are the estimates and 4ud#ments in computin# theearnin#s85

• *s the presentation of liabilities, to#ether with the disclosure of commitments andcontin#encies, presented in a manner that is clear, informative, and communicatesthe financial ris/s involved5

• 6as the e$ternal auditor completed an audit or review of the financial statements5What are the auditors findin#s and observations5

• &re there any potential liabilities, commitments or contractual arran#ements that are

not included in the financial statements or notes thereto5 *f not, why not5

FINANCIAL STATEMENTS


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MANAEMENT!S DISCUSSION ANDANALYSIS


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MD&A should

• 6elp current and prospective investors understand what the financial statements

show and do not show"

• Discuss material information that may not be fully reflected in the financial

statements, such as contin#ent liabilities, defaults under debt, off 9balance sheet

financin# arran#ements, or other contractual obli#ations"

• Discuss important trends and ris/s that have affected the financial statements, and

trends and ris/s that are reasonably li/ely to affect them in the future" and

• :rovide information about the .uality, and potential variability, of your companys

earnin#s and cash flow, to assist investors in determinin# if past performance is

indicative of future performance'


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The followin# .uestions focus on issues for CEs and C3s to consider when ma/in#their material fact1 and fairly present1 assessments in relation to the D-&'

• What is the involvement of the finance or#ani;ation and operatin# e$ecutives, bothat the corporate level and in the business units, in preparin# or reviewin# theD-&5

• Does the D-& comply with re#ulatory re.uirements5 Does it follow the #uidance produced by the +E


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• Does the D-& effectively communicate the composition of reco#ni;ed earnin#s

7e'#', contribution of business units8, the impact of e$ternal trends 7e'#', chan#es in

interest rates or forei#n e$chan#e rates8, the historical perspective 7e'#', comparison

with prior periods8 and future prospects 7e'#', comparison a#ainst strate#ic

ob4ectives85

• &re the principal business ris/s that are disclosed and discussed in the D-&

consistent with those that have been identified in strate#ic plannin# activities%

reports and operations reviews5 6ow are the disclosure and discussion of financial

ris/s 7e'#', off 9balance sheet financin# arran#ements and li.uidity disclosures8 in

the D-& related to the disclosures in the financial statements5

• *s the D-& written in clear, plain lan#ua#e5 Does it present with candour and

without e$a##eration a fair and balanced picture, includin# bad news1 as well as

#ood news15 Does the D-& have a mar/etin# or promotional bias5

• Does the D-& provide a complete, inte#rated and balanced view of the

companys historical results, future prospects, and financial condition e$plainin# the

why1 behind performance and prospects5


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THE CONTROLS


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THE CONTROLSASSESSMENT


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DISCLOSURE POLICY

• inimi;e the ris/ of selective disclosure

• Ensure that all disclosures made by the issuer to its investors or the

investment community are accurate, complete and fairly present1 the

companys financial condition, results of operations and cash flows in all

material respects, and

• Ensure that disclosures are made within the time periods specified by

applicable laws, re#ulations and stoc/ e$chan#e re.uirements'


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DISCLOSURE COMMITTEE

• Developin# and implementin# your disclosure policy

• onitorin# the effectiveness of and compliance with your disclosure

policy

• Educatin# your directors, officers and certain employees about disclosure

issues and your disclosure policy

• !eviewin# and authori;in# disclosure 7includin# electronic, written and

oral disclosure8 in advance of its public release, and

• onitorin# your Web site'


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SUPPORTIN PROCESSES


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• RO! OF T"! C!O A#$ CFO %TO#! AT T"! TOP 99 =eadership and a coordinated set of actions'

• S&'(C!RT)F)CAT)O# 99 Documentary evidence

99 >ot a substitute for their own dili#ence and /nowled#e'

• A)G#M!#T OF R)S* MA#AG!M!#T

• RO! OF )#T!R#A A&$)T


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Role of internal audit in thecertication process

• $e+ining the roles o+ the internal auditor

) ,- Traditional role

) .- Active participation and monitoring role

) /- Management assertion testing role


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Le"era#i$# %&&%rt'$itie(a$) '$)er(ta$)i$# li*it(

Recommended certi+ication roles o+ internal audit include0

• &ctively participatin# on, and monitorin#, pro4ects

• &ctin# as a liaison between the e$ternal auditor and mana#ement

• Conductin# .uality assurance reviews and trainin#• Conductin# on#oin# monitorin# and testin# of internal controls over

financial reportin#

• Trainin# and educatin# staff and audit committees on controls

• Consultin# on the sustainin# process

• :layin# advisory e$9officio role on committees 7disclosure%steerin#8


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Rec%**e$)e) r%le( %+ i$ter$ala')it ,- certi.cati%$ (ta#e

i$cl')e

• :lannin# and scopin#? :rovidin# advice and recommendations" participatin# in

pro4ect team plannin#

• Documentation? &dvisin# mana#ement on processes to use" conductin# independent

.uality assurance• Testin# and assessment? &ssessin# mana#ements documentation and testin#"

performin# effectiveness testin#" helpin# to identify and assess control #aps"

facilitatin# mana#ement discussions

• Deficiency mana#ement? :erformin# follow up reviews and independent validation

that remediation has been implemented• !eportin#? 3acilitatin# and providin# advice on mana#ement reportin#" actin# as a

coordinator between mana#ement and e$ternal audit" assistin# mana#ement in

providin# updates to the audit committee

• onitorin#? :erformin# periodic assessment of the certification process

• n#oin# controls education and trainin#

))i i l + i l


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A))iti%$al area( %+ i$ter$ala')it%r i$"%l"e*e$t i$ c%r&%rate

#%"er$a$ce

• 3raud pro#rams

• !is/ mana#ement


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Is !O erticationredi"le###


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ritical $uccess %actors

•=eadership

•*nvolvement of +enior E$ecutives

•+trivin# for Continual *mprovement

6. ceo cfo certification

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