Professional Documents
Culture Documents
Risks
Definition: risks are the opportunities and dangers
associated with uncertain future events
Risks can have an adverse (downside exposure) or
favourable impact (upside potential) on the
organizations objectives
Exercise
Which of the following are independence issues?
(1) Working as an audit junior on the statutory audit of a major bank with
whom you have your mortgage.
(2) Taking on a large new client whose fees will make up 90% of your
total revenue.
(3) Taking on a large new client whose fees will make up 10% of your
total revenue.
(4) Working as an audit partner and accepting a gold Rolex as agift.
(5) Performing an internal audit review of controls that you put in place
in your previous role.
(6) Working as an external auditor at a company where you have a
close personal relationship with a person who has a junior role in the
marketing department.
(7) Taking on the audit for a company with which your firm has recently
been involved in a share issue.
Protection of independence
The internal auditors should be independent of
executive management and should not have any
involvement in the activities or systems that they audit.
The head of internal audit should report directly to a
senior director or the audit committee. In addition,
however, the head of internal audit should have direct
access to the chairman of the board of directors, and to
the audit committee, and should be accountable to the
audit committee.
The audit committee should approve the appointment
and termination of appointment of the head of internal
audit.
Responsibilities of audit
committee
Responsibilities of audit committee in relation to internal
control:
review the companys internal financial controls
review all the companys internal control and risk
management systems, unless the task is taken on by a
separate risk committee or the full board
give its approval to the statements in the annual report
relating to internal control and risk management
receive reports from management about the effectiveness
of the control systems it operates
receive reports on the conclusions of any tests carried out
on the controls by the internal or external auditors.
Responsibilities of audit
committee
Responsibilities of audit committee in relation to
internal audit:
Review and assess the annual internal audit work plan
Approve the appointment and termination of head of
internal audit
Preserve independence
Check efficiency of internal audit
Ensure recommendations are actioned
Ensure accountable to the audit committee
Monitor and assess effectiveness of internal audit
Responsibilities of audit
committee
Responsibilities of audit committee in relation to external
auditor:
have the primary responsibility for making a
recommendation to the board on the appointment,
reappointment or removal of the external auditors
oversee the selection process when new auditors are
being considered
approve (though not necessarily negotiate) the terms of
engagement of the external auditors and the
remuneration for their audit services
have annual procedures for ensuring the independence
and objectivity of the external auditors
Responsibilities of audit
committee
review the scope of the audit with the auditor, and
satisfy itself that this is sufficient
make sure that appropriate plans are in place for
the audit at the start of each annual audit
carry out a post-completion audit review.
Responsibilities of audit
committee
Define and explain risk in the context of corporate
governance
Define and describe management responsibilities in
risk management
Explain the dynamic nature of risk assessment
Explain the importance and nature of management
responses to changing risk assessments
Explain risk appetite and how this affects risk policy
Questions
Define and explain risk in the context of corporate
governance
Describe management responsibilities in risk
management
Explain the dynamic nature of risk assessment
Explain risk appetite and how this affects risk policy
Distinguish between strategic and operational risk
The importance and nature of business and financial
risks