Board responsibility for internal control and risk management by Kiattisak Jelatianranat Chairman, The Institute of Internal Auditors of Thailand Director, PricewaterhouseCoopers Kiattisak Jelatianranat 31 May pwc 2nd Asian Roundtable on Corporate Governance

Responsibility VS Accountability Responsibility What, and Who will do ? Accountability How, and For whom ? ………. Both need independence and objectivity Kiattisak Jelatianranat pwc 2 31 May nd Asian Roundtable on Corporate Governance

Balanced Scorecard in Corporate Governance pwc Financial & non-financial information. Equitable Treatment of stakeholders. Combination of Lagging and Leading Information. Alignment of short-term objectives Kiattisak Jelatianranat 3 31 May nd Asian Roundtable on Corporate Governance

Balanced Responsibility …… legal & moral pwc Create strategic vision Select CEO & Senior management Establish strategic, accountable information Independent, objective and competent oversight of day-to-day operations Board “core” responsibilities………. Kiattisak Jelatianranat 4 31 May nd Asian Roundtable on Corporate Governance

Board Effectiveness pwc Corporate governance framework Risk management system Internal control system Auditing  Board initiative & Ownership of :  Selection of CEO & senior management  Oversight of CEO & senior management to establish Accounting system MIS Compliance program Operating systems Kiattisak Jelatianranat 5 31 May nd Asian Roundtable on Corporate Governance

Why corporate governance matters ? pwc Effective governance, and Proper communication with your stakeholders Sustainable Growth Pleasant Working Environment Substance Form Spirit Kiattisak Jelatianranat 6 31 May nd Asian Roundtable on Corporate Governance

Searching for the upside of risk management pwc Value Chain VS Risk Opportunity Uncertainty Harzard Risk is any issue which could impact your ability to meet your objectives base-line Enhancement Preservation Prevention Kiattisak Jelatianranat 7 31 May nd Asian Roundtable on Corporate Governance

Risk ……….. pwc Risk Assessment - Identify - Measure - Prioritize Risk Management - Assess adequacy of existing controls - Develop a control improvement plan - Create a continuous program for objectives, risk and control assessment Kiattisak Jelatianranat 8 31 May nd Asian Roundtable on Corporate Governance

Risk Management Action Options pwc Kiattisak Jelatianranat 9 31 May nd Asian Roundtable on Corporate Governance Options Fix Controls Re-Engineer Process Trainings Transfer Risk (Insurance) Outsource the Function Do nothing- Bet

Well-controlled Organizations pwc Key attributes of a well-controlled organization include : # 1. Leadership of Board # 2. Translation of strategic vision to day-to-day management # 3. Communication of objectives & values to all levels # 4. Individual accountability # 5. Risk management system # 6. Human resources reinforcement # 7. Independent, objective and competent oversight Kiattisak Jelatianranat May nd Asian Roundtable on Corporate Governance

Risk & Control : The twin systems pwc Define strategic risk Articulate risk philosophy Define values and behavioral expectations Assess risk Manage risk Assess existing controls Select control model Continuous communication Continuous program for ORC Develop a control improvement plan … Operations are dynamic and evolving... Communications & Audit Alignment Control Risk Objective Kiattisak Jelatianranat May nd Asian Roundtable on Corporate Governance

Complexity of Value chain…….. pwc A board must have the capability to respond to and manage changes. “Risk Management” and “Business Control” are the first thing for any board consideration. Kiattisak Jelatianranat May nd Asian Roundtable on Corporate Governance

Internal Control Learned in Real World pwc Focus on “Soft Control” in assessing all of COSO’s “Five Components” and “Three Objectives”. Soft Controls are subjective in nature, thus self-assessment is crucial for success. Implementation as an integral cultural change. Internal Control training is a “must”. Tailor practices to an organization to assure the surpassing expected benefits from the implementation. Kiattisak Jelatianranat May nd Asian Roundtable on Corporate Governance

COSO’s Internal Control Definition pwc is a process, effected by an entity’s people (board of directors, management, and other personnel), designed to provide reasonable assurance regarding the achievement of objectives in the following categories : Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations Kiattisak Jelatianranat May nd Asian Roundtable on Corporate Governance

Control Reality pwc Focus on people and process, not merely policy manuals and forms Require dynamic and interactive evaluation techniques. Verifying compliance with policies and procedures is not sufficient Kiattisak Jelatianranat May nd Asian Roundtable on Corporate Governance

Five Components of COSO’s Control Framework pwc Kiattisak Jelatianranat Control Environment: The Foundation on which everything rests. Risk Assessment: Aware of and deal with the risks it faces. Control Activities: Actions identified by management as necessary to address risks to achievement of objectives. Information & Communication: People to capture and exchange the information needed to conduct, manage and control operations. Monitoring: React dynamically, changing as condition warrant May nd Asian Roundtable on Corporate Governance

From Backroom To Board Room pwc Kiattisak Jelatianranat Organizations in the 21st Century must move internal control issues from their “Backroom” (Operating Level) to “Board Room” (the strategic level) May nd Asian Roundtable on Corporate Governance

Internal Audit Paradigm Shift pwc Kiattisak Jelatianranat Today internal auditors are management partners and consultants to add values to the organization. ………. No longer as a watch dog or a policeman May nd Asian Roundtable on Corporate Governance

Internal Auditing Definition pwc Kiattisak Jelatianranat 1999 Definition : 1999 Definition : Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Traditional Definition : Internal auditing is an independent appraisal function established within an organization to examine and evaluate its objectives as a service to the organization. The objective of internal auditing is to assist members of the organization in the effective discharge of their responsibilities. To this end, internal auditing furnishes them with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The audit objective includes promoting effective control at reasonable cost May nd Asian Roundtable on Corporate Governance

There is no alternative pwc Kiattisak Jelatianranat Toward the new millennium environment : Board of Directors and senior management have no alternative not to be the leadership and ownership of systems of risk management and internal control May nd Asian Roundtable on Corporate Governance