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    Chapter 3 - IA and Corporate Governance STDT

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    Nor Syahra Ajinim
    This document discusses internal auditing and its role in corporate governance. It defines internal auditing and explains how it functions as part of internal control, as an aid to management, and in its relationships with the audit committee and board of directors. Internal auditing also plays a key role in risk management by evaluating and recommending improvements to risk processes. The document outlines regulations from the Malaysian Code on Corporate Governance that provide guidelines on establishing an internal audit function.

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    Chapter 3 - IA and Corporate Governance STDT

    Uploaded by

    Nor Syahra Ajinim
    55 views23 pages
    This document discusses internal auditing and its role in corporate governance. It defines internal auditing and explains how it functions as part of internal control, as an aid to management, and in its relationships with the audit committee and board of directors. Internal auditing also plays a key role in risk management by evaluating and recommending improvements to risk processes. The document outlines regulations from the Malaysian Code on Corporate Governance that provide guidelines on establishing an internal audit function.

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    This document discusses internal auditing and its role in corporate governance. It defines internal auditing and explains how it functions as part of internal control, as an aid to management, and in its relationships with the audit committee and board of directors. Internal auditing also plays a key role in risk management by evaluating and recommending improvements to risk processes. The document outlines regulations from the Malaysian Code on Corporate Governance that provide guidelines on establishing an internal audit function.

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    © All Rights Reserved
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    Download as ppt, pdf, or txt
    55 views23 pages

    Chapter 3 - IA and Corporate Governance STDT

    Uploaded by

    Nor Syahra Ajinim
    This document discusses internal auditing and its role in corporate governance. It defines internal auditing and explains how it functions as part of internal control, as an aid to management, and in its relationships with the audit committee and board of directors. Internal auditing also plays a key role in risk management by evaluating and recommending improvements to risk processes. The document outlines regulations from the Malaysian Code on Corporate Governance that provide guidelines on establishing an internal audit function.

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    CHAPTER 3

    INTERNAL AUDITING
    AND CORPORATE
    LEARNING OBJECTIVES
    To be able to: -
    Define corporate governance (CG)
    Explain the characteristics of good and poor CG
    Explain the role of internal auditing as part of internal control
    Explain the role of internal auditing as an aid to management
    Explain the relationship of internal auditing and the audit committee
    (AC)
    Explain the relationship of internal auditing and board of directors
    (BOD)
    LEARNING OBJECTIVES
    To be able to: -
    Explain the role of internal auditing in risk management (RM)
    Explain the regulations and guidelines affecting internal auditing
    DEFINITION OF
    CORPORATE GOVERNANCE
    Extracted from the Report on CG, 1999

    “… the process and structure used to direct and manage the


    business and affairs of the company towards enhancing
    business prosperity and corporate accountability with the
    ultimate objective of realizing long term shareholder value,
    whilst taking into account the interests of other
    stakeholders.”
    CHARACTERISTICS OF GOOD
    CORPORATE GOVERNANCE
    ... Begins with good management structure and clear lines of
    authority and responsibility

    Important elements of good CG: -

    i. An effective BOD
    - set strategic direction and plan
    - a balance of executive and non-executive
    directors
    CHARACTERISTICS OF GOOD
    CORPORATE GOVERNANCE
    ii. Good management structure and clear line of
    responsibilities
    - clear delegation from board to the management through management
    structure, policies and procedures

    iii. Comprehensive policies and procedures


    - comprehensive and adequate policies and procedures to govern
    operation

    iv. Independent supervision by an AC


    - setting up independent supervisory bodies
    CHARACTERISTICS OF POOR
    CORPORATE GOVERNANCE
    Instances of poor CG: -
    i. Ineffective BOD
    ii. Ineffective AC
    iii. Excessive remuneration
    iv. Unreliable annual and audited report

    Impact of poor CG: -

    i. Poor financial reporting


    ii. Unreliable financial information
    iii. Inaccurate decision making
    INTERNAL AUDITING
    AS PART OF INTERNAL
    CONTROL
    The purpose of internal control process are to: -

    - Ensure financial and operational information are reliable and possess integrity
    - Ensure operations are performed efficiently and achieve effective results
    - Safeguard assets
    - Ensure actions and decisions of the organization are in compliance with laws,
    regulations and contracts
    - Support people within the organization in the management of risk and achievement of
    the organizational objectives
    INTERNAL AUDITING
    AS PART OF INTERNAL
    CONTROL
    Internal auditing is designed to add value and improve an
    organization’s operations.

    Its functions include:

    - Examining, evaluating and monitoring the adequacy and


    effectiveness of the accounting and internal control
    system.
    INTERNAL AUDITING
    AS PART OF INTERNAL
    CONTROL
    Its responsibilities toward internal control system are:

    - Review the internal control system


    - Make recommendations for improvement
    - Highlight major weaknesses in internal control system
    - Detect errors, abuse and fraudulent.
    INTERNAL AUDITING
    AS AN AID TO
    MANAGEMENT
    Internal auditing provides consulting services to management
    as part of the multiple internal auditing services .

    IA can assist the management by:

    - Monitoring activities of top management


    - Identifying and minimizing risks
    - Validating reports to senior management
    - Providing information for decision making process
    INTERNAL AUDITING
    AS AN AID TO
    MANAGEMENT
    - Reviewing for the present, future and past situations
    - Helping managers to manage by pointing to violation of
    procedures and management principles
    INTERNAL AUDITING
    AND THE AUDIT
    COMMITTEE
    AC
    - consist of outside members of the Board
    - serves as an intermediary between the auditor and management
    - responsible for evaluating the financial reporting and auditing process
    An effective AC should:
    - maintain independence
    - combine a balance of skills
    - provide list of specific duties and responsibilities
    - plan the year's agenda
    - document the AC’s work
    INTERNAL AUDITING
    AND THE AUDIT
    COMMITTEE
    Responsibilities of AC
    - assists the BOD in carrying out their responsibilities relating
    to the organization's accounting policies, internal control
    and financial reporting practices
    - establish and maintain lines of communication between the
    BOD and the external auditors and internal auditors
    INTERNAL AUDITING
    AND THE AUDIT
    COMMITTEE
    Specific area of AC responsibilities:
    i. Financial reporting
    - Full disclosures : results of operations/future plan / commitment
    - Recommend external auditor

    ii. Corporate governance


    - Firm comply to law and regulations

    iii. Corporate control


    - Implement internal control system
    INTERNAL AUDITING
    AND THE AUDIT
    COMMITTEE
    IA can assist the AC by:

    - Reporting significant issues regarding the improvement


    process or activities
    - Providing information on the coordination with other
    control and monitoring functions
    - Providing recommendations on non-conformity issues
    - Assisting AC in the fraudulent investigations
    - Proposing AC to consult the external auditors if required
    INTERNAL AUDITING
    AND THE BOARD OF
    DIRECTORS
    IA can assist the BOD by:

    - Ensuring that the visions, missions and objectives of the organization are properly
    communicated to all the functional departments.
    - Providing relevant information in preparing strategic planning
    - Monitoring the implementation of the strategic planning
    INTERNAL AUDITING
    AND THE BOARD OF
    DIRECTORS
    - Providing independent information on the effectiveness
    of the management or organization’s operation.

    - Helping in reviewing the composition of the BOD


    regarding the executive, non executive, independent
    persons and this should comply with the policies.
    INTERNAL AUDITING
    AND RISK MANAGEMENT
    IA has a key role in risk management.

    IA need to assist the management and AC in RM process by:


    - Examining, evaluating, reporting and recommending
    improvement on the adequacy and effectiveness of RM
    process
    - Develop methodologies and control measures
    - Develop assessment and document reports on the
    organization’s RM process
    INTERNAL AUDITING
    AND RISK MANAGEMENT
    - Educate and provide information on the importance of
    RM strategy to the organizational members

    If the management does not establish a risk management


    process, IA should suggest for it.
    REGULATIONS &
    GUIDELINES AFFECTING
    INTERNAL AUDITING
    Stated in the Malaysian Code on Corporate Governance –
    introduce by MICG

    The Code emphasis on the 3 relevant sections, namely

    i. The Principles of Provision (DII, Part 1)


    The board should maintain a sound system of internal control
    to safeguard shareholders’ investment and the company’s
    assets.
    REGULATIONS &
    GUIDELINES AFFECTING
    INTERNAL AUDITING
    ii. The Best Practices Provision (BB VII, Part 2)

    The board should establish an internal audit function


    and identify a head of internal audit who reports
    directly to the audit committee.

    The head of internal audit will be responsible for the


    regular review and/or appraisal of the effectiveness of
    the risk management, internal control, and governance
    processes within the company.
    REGULATIONS &
    GUIDELINES AFFECTING
    INTERNAL AUDITING
    iii. The Best Practices Provision (BB VIII, Part 2)

    The internal audit function should be independent of the activities they


    audit and should be performed with impartiality, proficiency and due
    professional care. The board or the audit committee should determine
    the remit of the internal audit function.

    Due to revamped listing requirements in 2001 – listed firms have to


    disclosed Statement on Corporate Governance and Internal Control
    Statement

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