audit committe - education and evaluation
DESCRIPTION
The Dutch governance code explicitly states that an Audit Committee of a public interest entity should at least have one financial expert as a member with relevant knowledge and experience of accounting and reporting as well as auditing. It is obvious that the committee as a whole should have competence relevant to the sector.TRANSCRIPT
1 Deloitte Framework for Audit Committee effectiveness
Education and Evaluation
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5. Education and Evaluation
Structured continuous educationContinuing education is a ‘conditio sine qua non’ when it comes to the proper fulfillment of the role of an Audit Committee member. The complexity of the current accounting and reporting standards, in particular when it comes to accounting for fair value, income recognition, financial instruments and disclosures, is such that AC members need to invest time in keeping current with the key accounting topics for the company.
In addition, there is the wider topic of compliance with applicable laws and regulations, not only in the home market but also overseas. The Audit Committee has to have a sufficient level of knowledge about the scope and impact of the requirements of the applicable laws and regulations.
There are many options for education and continuing education. On top of the already developed level of education there is the possibility to participate in any of the Board Programs of the different business Universities as well as to participate in any of the continuing educations programs offered by Universities, non-profit organizations and professional services firms.
It is important to keep current with the sector specific trends and developments, as these trends may affect the long term business model and the short term financial position.
The Supervisory Board should develop a program for continuing education based on an assessment of the risks and challenges facing the company and the impact on the roles and responsibilities of the Supervisory Board as a whole and for the Audit Committee in particular. Performance EvaluationThe Dutch Corporate Governance Code requires Supervisory Boards to report on how the Board has conducted the annual performance evaluation of the Supervisory Board as a whole and of the individual committees of the Board. The performance evaluation should be regarded as a critical assessment of the performance of the Board and the individual members.
Performance assessments also provide information about the effectiveness of the Audit Committee’s oversight of financial reporting. Under the Dutch Governance Codes for the Banking sector and the Dutch Governance for the Insurance sector, the external auditors must report their findings on the quality and effectiveness of the governance structure and the risk and control processes in the organization.
3 Deloitte Framework for Audit Committee effectiveness
In the context of the Code for the Banking sector, the external auditors will look at:• TheindependenceoftheAuditCommitteemembersfromthe
Management Board• TheclaritywithwhichtheAuditCommittee’sresponsibilities
are articulated and the degree to which they are understood by Management and the Audit Committee
• TheinteractionoftheAuditCommitteeandtheexternalauditors, the internal auditors and senior executives
• WhethertheAuditCommitteeraisestherightquestionswithManagement and the external auditors, including questions that indicate its understanding of critical accounting policies and judgments
• WhethertheAuditCommitteehasbeenresponsivetoissuesraised by the external auditors.
How the performance evaluation is performed is at the discretion of the Supervisory Board. In most cases this is an internal process, but there is a growing trend of using external advisors for these evaluations.
There are no specific guidelines for assessing an Audit Committee’s performance. The Board members have the benefit and burden ofcollaboratingonanappropriateprocess.Whenadvisable,thisshould be done in consultation with a legal counsel, since the evaluation will most likely include an assessment on the degree to which the charter and other regulatory requirements and best practices have been followed.
Important points of attention in doing the performance evaluation:• Considerwhetherornottouseanexternaladvisortostructure
and lead the evaluation process• MakeadistinctionbetweenanassessmentoftheSupervisory
Board as a whole and an assessment of the performance of the individual members
• Theassessmentwillfocuson: - The relevance of the Board agenda - The quality of the Board meetings and the contribution by
the individual members - The quality of the information provided to and by the Board - The roles and responsibilities within the Board - The quality of the Board composition against the
requirements - The role of the Chairman - The interaction with the Management Board, shareholders
and other stakeholders
In order to support the Audit Committee we have developed a compact Audit Committee self-assessment tool.
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• Dotheassessment‘outside-in’:startwithanassessmentfromthe points of view of the different stakeholders, followed by an assessment of the Board performance by the individual Board members
• AskforfeedbackfromtheManagementBoard• Inthecaseofaself-assessment,AuditCommitteemembersmay
complete a questionnaire collectively or individually. In the case of input from the Management Board and the Internal Auditor, the format may consist of evaluation forms, interviews or both
• Thequalityofthedocumentationisimportant,notonlyofthedocumentation of the Audit Committee’s considerations on relevant topics discussed, but also of the performance evaluation process.
In order to support the Audit Committee we have developed a compact Audit Committee self-assessment tool which is included as appendix C to this publication.
5 Deloitte Framework for Audit Committee effectiveness
Commitment to effective corporate governanceDeloitte has a number of programs and initiatives that demonstrate its commitment to helping boards and Audit Committees enhance their effectiveness and overall corporate governance.
Center for Corporate GovernanceThe Deloitte Center for Corporate Governance is a resource for executives, directors, and the governance community on the latest and most relevant corporate governance trends, regulations, and leading practices. The center generates research and roundtables on current boardroom issues and conducts a monthly Dbrief webcast series on governance topics. The Center for Corporate Governance website at www.corpgov.deloitte.com offers timely, relevant, and balanced governance information for boards of directors, senior executives, investors, and others interested in governance.
Governance servicesDeloitte governance services include board evaluations, board and committee practice benchmarking, and in-the-boardroom director development programs. Services draw on the full range of Deloitte’s experience in areas critical to board effectiveness. To learn more, contact your Deloitte partner or e-mail us at [email protected]
References• NBA,DeRaadvanCommissarissenalsopdrachtgevervande
accountant (Betrekking hebbende op OOB), adviesrapport, september 2011
• NederlandseCodeCorporateGovernance
• DeloitteUS,AuditCommitteeResourceGuide,2011
• DeloittetheNetherlands,MaatwerkinGovernanceServices,2012
• ...andinspirationfromvariousothersources.
For further information please feel free to contact your personal Deloitte contact partner or:[email protected] Buné at [email protected]@deloitte.nl
IfyouwouldliketoreceivetheappendicesinaWordtemplateso that you could edit/save them, please send an e-mail to [email protected]
Sources and references
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©2012DeloitteTheNetherlands-Secondedition