A Leadership Prescription for Audit Committee Members: “Energizing your Audit Committee to Ask the Hard Questions” Presentation to CAACM’s 5 th Annual Meeting & Conference in Collaboration with ICATT July 13, 2011 The Hyatt Regency, Port of Spain, Trinidad.

Presented By: Mr. Larry Kowlessar and Dr. Lennox Sealy Organization Development Consultant 2 CAIB 2011 THEME Adding Value Not Bureaucracy: The Role of the Audit Committee in Assessing Your Business Risk Profile, Risk Priorities and Governance Structures

3 32% die of old age 30% die from cancer 25% die from heart disease 10% die from road and other accidents 2.5% die from insect and snake bites 0.5% are taken by crocs and sharks ……. and it is expected that by % will start dying from boredom because of listening to PowerPoint presentations at Conferences Recent research shows the following Population Statistics

PRESENTATION FLOW 1.0 The End The Beginning 3.0 The Continuation Let’s Start with….. Finish with… Continue with…

1. Be reminded of the Role of the Audit Committee 2. Hear an interpretation of the challenges of an Audit Committee in today’s environment and 3. Digest some recommendations as to how Audit Committees can add value 5 AFTER HEARING MY PRESENTATION YOU WILL… AFTER HEARING MY PRESENTATION YOU WILL…

CLOSING THOUGHT 6 Question: Why do luxury cars and large vehicles have great braking systems? Answer: Because if they are large and /or can go fast.. They must be able to stop more quickly 1.0 The End

Controls have traditionally been viewed as a stifling of freedom or creativity, but it also can be viewed as a way to improve or allow speed, freedom and creativity More Control... More Creativity 7

What Really is an Audit Committee? The Beginning

THE AUDIT COMMITTEE "The Audit committee is the governance body that is charged with oversight of the organization’s audit and control functions” (International Institute of Auditors (IIA) Practice Advisory of 2004). 9

February 14, Audit Committee Context Board of Directors – determines and approves strategies, sets objectives and ensures the objectives are being met Audit Committee – responsible for overseeing the internal control structure (operations, compliance, risk and financial reporting) Senior Management– defines, develops, implements, and documents the internal control structure External Audit – attests to the fair statement of financial results Internal Audit - validate the internal control structure by analyzing the effectiveness of internal controls 10

“ Audit committees are designed to help boards and directors discharge their duties regarding :  Reported financial information  Central controls  Corporate codes of conduct (if any exist). “ Audit committees are designed to help boards and directors discharge their duties regarding :  Reported financial information  Central controls  Corporate codes of conduct (if any exist). 11 Why an Audit Committee

THE AUDIT COMMITTEE ROLES 1. Overseeing the financial reporting and disclosure process 2. Monitoring choice of accounting policies and principles 3. Overseeing hiring, performance and independence of the external auditors 4. Oversight of regulatory compliance, ethics, and whistleblower hotlines 5. Monitoring the internal control process 6. Overseeing the performance of the internal audit function 7. Discussing risk management policies and practices with management 12

13  Typically the role, responsibilities and authority of the Audit Committee will be set out in a board approved Charter.  As noted in IIA Practice Advisory Internal Audit has an important role to play in assisting the Audit Committee to ensure that its charter, activities and processes are appropriate to fulfil its responsibilities. Audit Committee Charter 13

14  The Charter must be reviewed regularly as new responsibilities are taken on by the Audit Committee.  Internal audit can ensure that the Charter is updated to take new legal requirements and best practices into account and co-ordinate an annual review of the charter and report to the Audit Committee on its performance against the Charter during the year. Audit Committee Charter 14

RESULTS OF THE WORK OF A GOOD AUDIT COMMITTEE The board makes properly informed decisions regarding:  Accounting policies  Accounting Practices  Risk management and  Disclosure 15

Audit Committee Leadership 16

17 Who is on your Committee? 17

Audit Committee Composition  The members must be:  Non-executive with a majority being independent and  At least one of the three independent directors must be a qualified accountant. 18

Attributes of Effective Audit Committee Members 1. Key is good understanding of the business — including company’s products, services, and industry 2. Willingness to dedicate substantial time and energy 3. Good financial knowledge 4. Willingness to attend regular training

20 7Attributes of Effective Audit Committee Members (Cont’d) 5.Extremely high level of integrity 6.Healthy skepticism and courage to challenge 7.Inquisitiveness and independent judgment

Sarbanes-Oxley and the Future of The Audit Committee  Sarbanes-Oxley is the most significant legislation pertaining to financial reporting, and auditing, since the establishment of the Securities and Exchange Commission (SEC) in the 1930s.  The act has had an observable impact on business, one example of which is the increase in financial expertise on audit committees.  An enhanced partnership is now required between external auditors, internal auditors, and audit committees. 21

2.0 Challenges of the Audit Committee – 20 Leadership Questions 22

Asking the Right Questions? “Better to have an approximate answer to the right question, than an exact answer to the wrong question.” Statistician - John W. Tucker 23

A. Evaluation Effectiveness 24 B. Stress Management C. Allocation of Responsibilities & Role Engagement D. Information, Training & Decision Making 20 Questions - 4 Categories

A. Evaluation Effectiveness 1. How satisfied are you with your current evaluation process? 2. How can the external auditor add the most value to your assessment process? 3. Should individual members be evaluated? 4. Does feedback from the audit committee assessment lead to changes in behaviour, process or both? 25

A. Evaluation Effectiveness (cont’d) 5. As audit committee chair, how much additional time do you spend on committee business compared with other audit committee members? 6. How do you coordinate with internal and external audit, members of the finance organization or other board members in advance of audit committee meetings? 26

7. What pressures is your audit committee under from various stakeholders? 8. How is this affecting your audit committee agenda and how you approach your work? 9. Have we reached a point where audit committee over-reach is itself a risk? 27 B. Stress Management

C. Allocation of Responsibilities & Role Engagement 10. What makes for an effective and engaged audit committee member? 11. How does your Board allocate responsibilities to the audit committee and other committees of the Board? 28

Allocation of Responsibilities & Role Engagement (cont’d) 12. Have there been any major changes in allocation between committees or between a committee and the full Board? 13. What role can the audit chair play in making sure committee members stay engaged? 29

D. Information, Training & Decision Making 14. How do you determine what information should be provided to the audit committee? 15. Who else is involved in that decision and how do you work with management to refine information for the audit committee? 16. What is the most effective way to deliver audit committee technical education? 30

17. What techniques do you find most useful for chairing efficient audit committee meetings? 18. What is a good balance between presentation and discussion? 19. How can you create space for more discussion of topical issues? D. Information, Training & Decision Making (Cont’d) 31

3.0 The Key Recommendation for Adding Value - Quality Evaluation 32

33 Quality Evaluations 1. Evaluate committee performance regularly by comparing activities against i.Charter ii.Leading practice 2. Assess committee dynamics, not only on what the committee does, but also on how effectively it functions 3. Evaluations should be robust - not simply a “check the box” exercise 4. Obtain feedback from board, management, internal audit, general counsel, and external auditors

Thank You For Your Attention Please Continue Your Improvement Processes 34