Audit & Assurance

“Corporate Governance”
Lecture Outline

 Concept of Corporate Governance

 Need of Corporate Governance
 OECD Principles of Corporate Governance
 Corporate Governance & Audit Committee
 Corporate Governance & Internal Control
 Corporate Governance and ISA-260
OECD Principles about Audit Committee

Issues:
i. Integrity of Company’s Reporting
ii. Nomination of directors
iii. Remuneration of Executive Directors
iv. Appointment of External Auditor
OECD Principles about Audit Committee

 OECD Principles recommend that company should have an Audit Committee.

 Audit Committee: A link between Board of Directors and Management as well as
Supervision of BOD and Management of the company.

Board of Directors

Audit Committee

Management
 Audit Committee

 Directors establishes Audit Committee

 It is a sub-committee of boards of directors

 All members should be non-executive Directors

 At least three members in audit committee

 In small company have two members

 Purpose/Functions of Audit Committee

i. Maintain the objectivity (truth and fairness) with regards the financial
statements.
ii. Monitor the integrity of financial statements.
iii. Formal announcement of company performance in annual general
meeting.
iv. Review the significant financial reporting issues.
v. Helps the internal auditor to maintain integrity and independence.
vi. Monitor the integrity and independence of external auditor.
vii. Recommendations about remuneration of directors, nominations of directors
and Appointment of external auditor.
OECD Principles about Internal Control

ISSUES:
 Who should Protect the shareholders
investment and company’s assets?
 Who should detect and prevent errors and
frauds?
OECD Principles about Internal Control

Directors are responsible for ensuring the strong system of internal

control.
Assess the risk in internal control system.
Directors are responsible for designing the internal control system on
the basis of risk assessment.
Directors are also responsible to review the internal system in order to
find out the deficiencies if any.
Directors are responsible to establishes audit committee.
BOD’s are responsible to produce a report “Report on Re-view of
Internal Control System” in addition to the annual financial reports.
 OECD Principles & ISA-260
Communication with
“Those Who Charged with Governance”

 OECD Principles Recommend that Auditor should

Communicate with “Those who Charged with
Governance”
 “Those who charged with Governance” are the
person/persons or group of people who are responsible
to oversees the strategic directions and have obligation
related to the accountability
 This communication helps to maintain constructive
relationship between auditor and “those who charged
with governance”.
Matters to be Communicated

 Scope of audit:
Means the extent of audit procedures and method of examination of
Financial Statements
 Timing of audit:
When audit will be started and how much time required to
conduct the audit?
 Findings of audit:
Auditor discuss about the findings of audit i.e. any fraud,
errors, misstatements etc.
Matters to be Communicated…..

 Accounting Estimates, Procedures, Standards:

Auditor enquires about Estimates , Procedures and Standards applied in
preparing Financial Statements
 Material Weaknesses in internal control system:
Auditor Communicates Material Weaknesses in design and
Implementation of Internal control.
 Difficulties encountered during audit:
In this the auditor discuss about difficulties or hurdles which are arises
during the conduct of audit.