The International Corporate Governance System: Audit Roles and Board Oversight

Governance

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In order to support these business divisions, the Company introduced divisional company system.

The Company also established Corporate Strategy Division, which is responsible for the strategic management throughout the group, to promote enhancement of the corporate value by formulating mid- and long-term group-wide strategies. In addition, the Company incorporated Professional Business Support Sector which assumes the function of the group-wide management control in terms of developing and improving the Company wide rules and systems infrastructure, implementing internal audit, internal control and compliance activities required to the listed company and the legal entity, and responding to the stakeholders.

The Board of Directors, which is composed of eleven 11 Directors including four 4 Outside Directors, of which one 1 is a woman at least one-third of its Directors are Outside Directors , seeks to ensure the diversity of the knowledge, experience and qualifications of the Board of Directors as a whole.

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Chairman of the Board who is not involved in execution of business takes on the position of a chairman. Under the seven 7 Divisional Company-based management structure, the Company has empowered each of seven 7 Divisional Companies and business divisions through delegation of authority. At the same time, the Company employs an Executive Officer system to provide the execution of business at its various domestic and overseas group companies.

The Company has fifty 50 Executive Officers including those who concurrently serve as Directors , which include President, Vice President, senior managements of each of seven 7 Divisional Companies, senior officers responsibly for certain foreign regions and officers responsible for corporate functions. In addition, in order to ensure swift and strategic decision-making, along with sound and appropriate monitoring at the same time, the Board of Directors, as a decision-making body for Group-wide matters, concentrates on decisions about the corporate strategies and the supervision of the seven 7 Divisional Companies.

Taking into consideration the diverse scope of its business operations, the Company has opted to maintain a system where Executive Officers, who are most familiar with the specifics of the operations, take an active part in the Board of Directors. Moreover, to clarify the responsibilities of Directors and build a structure of the Board of Directors flexibly, the Company limits the term of each Director to one 1 year. The Company has been enhancing objectivity and transparency of the committee by ensuring that Outside Directors constitute a majority of its membership with one of them serving the chairperson.

The Company, to enhance effectiveness of the Board of Directors, conducts a survey to all the Board members who attend the meeting annually, and reports the results and evaluations of the survey at the Board.

The items of the survey in the fiscal are;. Findings with respect to strengthening functions of the Board of Directors, however, included opinions regarding the need to further continue discussions on mid- to long term business strategy and compliance. As such, the Company is successively addressing such issues and implementing improvements.

Internal Audit Oversight

In accordance with this basic policy, important matters concerning the management of the Group are resolved or reported at the Board of Directors pursuant to the Regulations of the Board of Directors. These important matters and other matters, which are required to be disclosed under relevant laws and ordinances in Japan and overseas or any other regulations, are timely and accurately reported from each relevant department, that has the important internal information, to the department that handles relevant information under the monitoring of the Chief Financial Officer CFO , so that important information is gathered.

Further, matters required to be disclosed under the rules of financial instruments exchanges are also under the monitoring of the CFO. With respect to the information gathered or identified, the Company determines the necessity of disclosure thereof in accordance with relevant laws and ordinances in Japan and overseas, and the rules of financial instruments exchanges or any other regulations, and makes effort to disclose it at the time that the organization, which effectively decides execution of the business of the Company, makes a resolution or determination, or becomes aware of its occurrence.

In addition, the Company endeavors to confirm the contents and expressions of the disclosure with the relevant departments within the Company and outside legal counsel to ensure the accuracy, fairness and adequacy of the disclosure. Moreover, the Company has established disclosure control procedures in order to comply with relevant laws and ordinances in Japan and overseas, the rules of financial instruments exchanges and any other regulations, and to implement the fair, accurate and timely disclosure of information about its Group, etc.

An open and transparent relationship is demonstrated by regular formal and informal communication. The audit committee reviews and approves the internal audit charter annually and the internal audit charter provides the functional and organisational framework within which the internal audit function operates. This document sets out the scope and objectives, authority and accountability and role and responsibility of internal audit. In terms of objectives many charters adopt the IIA definition as the basis. In reviewing internal audit charters we encourage organisations to benchmark their approach with other like or high profile organisations.

The ASX charter is prescriptive on the accountability and responsibility of its internal audit function by setting out expectations on reporting deliverables such as:. Equally the audit committee should have in place a protocol as to who is empowered to approve an amendment to the internal audit charter. Best practice would dictate that it would be the audit committee itself and possibly the Chief Executive Officer. Consistent with this therefore is that the CAE must properly and well articulate the true condition of the undertaking that it is reviewing.

If it fails to do so or deliberately seeks communicate in an ambiguous manner not only will the Audit Committee be devoid of proper knowledge of the current environment over which it seeks to govern but it will become lack the ability to properly supervise the management that should be addressing any control deficiency. The issue as to whether an internal audit function should articulate both the strengths and the weaknesses of the organisation has been debated strongly within the internal audit community.

Is it the role of internal audit to offer praise on the well operated processes and procedures of the area that it has sought to review? Or should internal audit only concern itself with where there are opportunities for improvement?

Corporate Governance

This is a debate that each organisation needs to decide. Irrespective of those deliberations, however, it is incumbent upon both the audit committee and the CAE that that the current state of the internal control and risk management systems are well articulated in a manner that is not dense on detail nor so high level that key messages are lost in translation.

The internal audit activity is sufficiently resourced with competent, objective internal audit professionals to carry out the internal audit plan which has been reviewed and approved by the audit committee. In determining whether the internal audit activity is sufficiently resourced with competent and objective professionals one needs to first define — and document — what it is that demonstrate competency and objectivity.

It would be erroneous to think that an internal audit professional must be someone that has been born to the profession. Some of the best internal audit professionals that we have had the pleasure to work with are those that come from varied backgrounds such as psychology and, even, zoology. What matters is not the discipline that they have studied at university but their ability to approach an audit with a dispassionate yet inquiring mind; to be able to articulate well yet not verbosely.

Indeed to suggest that someone needs to have had advanced studies to be an internal audit professional is equally erroneous. The second element here is that there needs to be an internal audit plan. That is the internal audit function needs to be methodical in the assessment of which areas that it considers — usually dictated by a risk rating — worthy of its attention. A trap that immature internal audit functions sometimes falls into is that they consider that the internal audit plan — once approved — cannot be changed.

A comprehensive ready reckoner

An organisation is a living beast and so is an internal audit plan — when the organisation changes so should the internal audit plan. A strong audit committee will acknowledge this and will facilitate regular reviews of the ongoing relevance of the internal audit plan. The internal audit activity is empowered to be independent by its appropriate reporting relationships to executive management and the audit committee. The audit committee address with the CAE all issues related to internal audit independence and objectivity. Without independence you do not have an effective internal audit function.

Corporate Governance

Internal audit must be, and must be seen to be, independent of the activities and processes that it appraises so as to ensure that it is capable of performing its duties in an objective manner and providing impartial advice to management and the Board. The independence is best demonstrated by a director reporting line between the CAE and the audit committee in terms of functional audit matters.

Many organisations additionally arrange that the CAE reports to a senior function for administrative purposes. Failing to properly oversight a function that seeks to honestly lay bare the true condition of the undertaking opens up those that seek to supervise and govern organisations that they are not doing all that they can to properly inform — and grow the wealth — of the proprietors. What is it that you — as the proprietor or as a proxy for the proprietor — are doing to ensure that your internal audit function is worthy of its ancestral roots?

He now operates a boutique internal audit, corporate governance and fraud prevention consultancy called McLeod Governance which advises globally with Boards, Audit Committees and Chief Audit Executives. Sign in Join. Sign in. Log into your account. Sign up. Password recovery.

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Corporate Governance Definition

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