Speaking at the launch of the Audit Committee Membership and the Best Internal Audit Practice Award organized by the Institute of Internal Auditors Malaysia, Yusli said,
”Two critical factors in enhancing independence and therefore the performance of audit committees are:
- clarity in the definition of independence and the composition of audit committees.
- effective management of inter-relationships by audit committees
The definition of the independent director, in Bursa Malaysia Listing Requirements, is one who is independent of management and free of any business or other relationship which could interfere with the exercise of independent judgement or the ability to act in the best interest of an applicant or a listed issuer. In the case of the audit committee – the ability to act in the best interest of the audit committee.
On effective management of inter-relationships by Audit Committees, Yusli said the audit committee can enhance its performance through enhancing the collaborative effort between management, internal and external auditors – as quality financial accounting and reporting result only from effective inter-relationships between these key parties.
“There are core activities that can be identified as fundamental to enhancing the performance of audit committees.
“One such core activity is the audit committee review of the internal audit function, including the internal auditing budget, proposed audit plans for the coming year and how such plans reflect the external auditors’ objectives.
“Another core activity is for the audit committee to review significant and unexpected internal audit findings and management’s response to them as well as any difficulties – especially audit scope restrictions - that internal auditors had encountered during the audit, “ he said.
Yusli said qualified and experienced audit committees are more likely to view internal auditors as a valuable resource in overseeing the financial reporting process.
“Further to this, it is independent, qualified and experienced audit committees that may be more willing and able to investigate accounting irregularities, exceptions or other relevant matters such as scope restrictions that management might impose.
“It is also independent, qualified and experienced audit committees that recognise the dimension of its oversight responsibility of the external auditor. Such an audit committee may be more willing to accept the fact that external auditors work for and is accountable to the audit committee as representatives of shareholders.
“Understanding how this accountability operates will enable audit committees and external auditors to work together more effectively,” he said.
In his speech, Yusli said five factors that ensure the enhanced performance and effectiveness of audit committees:
- Doing the right things
- Having the right people
- Managing critical relationships
- Doing the right things right, and
- Striving for continuous improvement
