11 pages

Español

Challenges for audit committees master

Mocher - Achambers

Le téléchargement nécessite un accès à la bibliothèque YouScribe
Tout savoir sur nos offres

11 pages

Español

Le téléchargement nécessite un accès à la bibliothèque YouScribe
Tout savoir sur nos offres

A propos
Informations
Extrait

Description

FINANCIAL REPORTING COUNCIL C HALLENGES FOR AUDIT COMMITTEES ARISING FROM CURRENT ECONOMIC CONDITIONS N OVEMBER 2008 Introduction Current economic conditions provide particular challenges to all involved with annual reports and accounts. The purpose of this document is to assist audit committees by identifying key questions that that they may need to consider when preparing for the year end and in carrying out their role in relation to annual financial statements. It does not establish any new requirements. The Financial Reporting Council (FRC) has also published “An update for directors for directors of listed companies: going concern and liquidity risk” which brings together the existing guidance and recent developments relating to going concern and liquidity risk which may usefully be read in conjunction with this document. (http://www.frc.org.uk/corporate/goingconcern.cfm) Requirements of the combined code and related guidance The FRC is responsible for the Combined Code on Corporate Governance (the Code) and its associated Guidance on internal control (the Turnbull Guidance), Guidance on audit committees, and on Going concern and financial reporting. Principle C.1 of the Code sets out that the board should present a balanced and understandable assessment of the company’s position and prospects. Further, the board is responsible for the preparation of financial statements that give a true and fair view. Principle C ...

Sujets

management

risk management

managers

Informations

Publié par	Mocher
Nombre de lectures	72
Langue	Español

Extrait

FINANCIALREPORTINGCOUNCIL

CHALLENGESFORAUDITCOMMITTEES ARISINGFROMCURRENTECONOMICCONDITIONS

NOVEMBER2008

IntroductionCurrenteconomicconditionsprovideparticularchallengestoallinvolvedwithannualreportsandaccounts.Thepurposeofthisdocumentistoassistauditcommitteesbyidentifyingkeyquestionsthatthattheymayneedtoconsiderwhenpreparingfortheyearendandincarryingouttheirroleinrelationtoannualfinancialstatements.Itdoesnotestablishanynewrequirements.TheFinancialReportingCouncil(FRC)hasalsopublished“Anupdatefordirectorsfordirectorsoflistedcompanies:goingconcernandliquidityrisk”whichbringstogethertheexistingguidanceandrecentdevelopmentsrelatingtogoingconcernandliquidityriskwhichmayusefullybereadinconjunctionwiththisdocument.http://www.frc.org.uk/corporate/goingconcern.cfm)RequirementsofthecombinedcodeandrelatedguidanceTheFRCisresponsiblefortheCombinedCodeonCorporateGovernance(theCode)anditsassociatedGuidanceoninternalcontrol(theTurnbullGuidance),Guidanceonauditcommittees,andonGoingconcernandfinancialreporting.PrincipleC.1oftheCodesetsoutthattheboardshouldpresentabalancedandunderstandableassessmentofthecompany’spositionandprospects.Further,theboardisresponsibleforthepreparationoffinancialstatementsthatgiveatrueandfairview.PrincipleC.3setsoutthatboard’sshouldestablishformalandtransparentarrangementsforconsideringhowtheyshouldapplythefinancialreportingandinternalcontrolprinciplesandformaintaininganappropriaterelationshipwiththecompany’sauditors,andprovisionC.3.1ofthecodeenvisagesthatboardsshouldestablishanauditcommittee.TheGuidanceonauditcommitteessetsoutthemainroleandresponsibilitiesofanauditcommittee.Particularlyrelevantincurrenteconomicconditionsismonitoringtheintegrityofthefinancialstatementsofthecompanyandanyformalannouncementsrelatingtothecompany’sfinancialperformance,reviewingsignificantjudgmentscontainedinthem,andreviewingthecompany’ssystemofinternalfinancialcontrolsandinternalcontrolsandriskmanagementsystems.Theattachedquestionsseektoaddressissuesthatwillberelevanttotheworkofmanyauditcommitteesoverthenextfewmonths.

Financial Reporting Council 1

KeyissuesforauditcommitteestoconsiderwhenpreparingforyearendprocessesandreportsYearendplanningconsiderationsBusinessriskshavechangedconsiderablyinrecentmonths.Thefinancialcrisishasledtostressinthenon‐financialpartsoftheeconomy.Theupdatefordirectorsongoingconcernandliquidityriskemphasisesthebenefitofplanninghowtoaddressthegoingconcernassessmentasearlyaspracticable.Auditcommitteesmayneedtoreconsidertherisksthattheirbusinessfacesandtoensurethattheyhaveconsideredtheimpactofthesenewrisksontheirworkinadvanceoftheannualreportingseason.Theyarealsolikelytowanttobesatisfiedthatappropriateplansfortheassessmentofgoingconcernhavebeenmade.Effectivesystemsareparticularlyvitalattimesofeconomicstress,inordertoreacttofast‐ changingmarketsandtohelpmanageanincreasedriskoferror,omissionandfraudwhenmanagementandsupportingfinanceteamsareunderabnormalpressures.Auditcommitteesmaywishtoreconfirmthatreportingandinternalcontrolsystemsareinplaceandfunctioningeffectivelyandthatresourcesareinplacetosupportandauditdifficultyear‐ endjudgments.LiquidityriskandgoingconcernSomecompaniesarefacingadditionaldifficultiessecuringfinanceandsomearereportedtohaveexperiencedreducedfacilities,increasedcostand/ormoredemandingcovenants.Thesetrendsarelikelytocontinue.Heightenedliquidityriskmaynecessitategreaterattentiontothekeyassumptionsandprocessesthatleadtocashflowforecasts.Insomecases,detailedconsiderationwillneedtobegiventodeterminewhetherthereare,orarenot,materialuncertaintiesleadingtosignificantdoubtaboutwhetherthebusinessisagoingconcern.Auditcommitteesarelikelytoexamineinmoredetailtherigourwithwhichtheanalysissupportingthegoingconcernjudgmenthasbeenmadeandtheintegrityofthedisclosuresaboutgoingconcerninthefinancialstatementsandothermarketcommunications.RelianceonassumptionsandmodelsforcashflowandvaluationinformationThevolatilemarketconditionsmeanthatmanycompanieswillneedtoconsiderawiderrangeofreasonablypossibleoutcomeswhenperformingsensitivityanalysisontheircashflowprojectionsthatsupportassetvaluationsandassetimpairmentassessments.Thisincreaseintherangeofreasonablypossibleoutcomesfacedbybusinessesintroducessignificantadditionalpressureonthejudgmentsneededtoevaluateilliquidassetvalues.Inviewofthecontinuingvolatilityoffinancialandnon‐financialmarkets,auditcommitteesarelikelytowantabetterunderstandingofthesejudgmentsandarelikelytorequiremoredetailedanalysisandsupportinginformationthaninpreviousyears.

2 Challenges for Audit Committees arising from current economic conditions (November 2008)

SignificantaccountingandreportingjudgmentsPrinciplesbasedaccountingandreportingstandardsdependuponthembeingappliedinaconstructiveandtransparentmannerwithafocusonusefulcommunications,notjusttheminimumnecessarytocomplywithlawsandregulations.Attimesofstress,auditcommitteesarelikelytowanttobeassuredthatkeyjudgmentsaresupportedbyagreaterdegreeofrigourandanalysisthaninmorenormalcircumstances.ThefollowingschedulesetsoutinmoredetailpotentialkeyquestionsthatmayberelevanttoauditcommitteesastheyseektoaddressthesechallengesTheimportanceofthedifferentquestionswillvarydependinguponindividualfactsandcircumstances.November2008

Financial Reporting Council 3

AreaofconsiderationYear‐endplanningconsiderations

Keyquestions

2008/09 Corporate Reports Key Questions for Audit Committees

Hastheauditcommitteeconsideredhowitshouldrespondtoaheightenedriskoferrors,omissionsormanipulationofreportedfinancialresultsorbalancesheetpresentation?Hasitassessedhowtheseriskshavebeenmitigatedordoesithaveplansinplacetodoso?

Doesthecommitteeneedtoaddtoitsmembershiporbringinspecialistadviserstohelpittomeetitsresponsibilities?Ifso,havetheadditionalresourcesbeensecured?

Doesthecommitteeneedfurtheranalysisoftherisksfacingthebusinessandhowthoserisksarebeingaddressed?Ifthisisnecessary,hastheanalysisbeencommissionedandadeadlineagreed?

Isthecommitteesatisfiedthattheboardhasrespondedeffectivelytobusinessriskswhichhavedevelopedovertheyearwithappropriatemodificationstothegroup’sstrategy?Ifthisisinprogress,isthereanagreedtimetabletoreportbacktothecommittee?

Hasarecentreviewbeenconductedofreportingarrangementstoensurethathigh‐quality,well‐controlledandtimelymanagementdataisavailable?Didthatreviewconcludethatadditionalresources,controlsorprocedureswerenecessaryand,ifso,isthereadatetoreportprogresstothecommittee?

Hasthecommitteeconsideredwhetherthegroupfinancefunctionneedsadditionalspecialistskills,experienceorresourcestopreparetheannualreportandsupportingyear‐endinformationfortheboardandthecommittee?Ifadditionalresourcesarerequired,hasaplantoincreaseresourcesbeenmadeandimplemented?

Hasthecommitteeconsideredwhetherthegroupreportingtimetablehasadequatetimeforallissuestobeproperlyaddressedandistheresufficientflexibilitytobeabletocopewithunexpectedevents?

Hasthecommitteerecentlyreviewedtheprincipalgroupaccountingpolicies?Didthatreviewconsiderallareasthatmayhavebeenimpactedbychangingeconomicconditionsandevents?Isthereaneedtoscheduleanupdatebeforetheyearend?

4 Challenges for Audit Committees arising from current economic conditions (November 2008)

Liquidityriskandgoingconcern

2008/09 Corporate Reports Key Questions for Audit Committees

Hasthecommitteeconsideredwhetherthegroupauditplanhasbeenupdatedtoaddresscurrentrisks?Havetheexternalauditorsallocatedsufficientadditionalandexperiencedresourcestoaddressheightenedrisksand,ifnot,arenegotiationsscheduledtosecureadditionalcommitments?Isthecommitteesatisfiedthatappropriateplansareinplacetomakeaconsideredassessmentabouttheuseofthegoingconcernbasisofaccountingatthedateofapprovaloftheannualreportandaccounts,andthatanynecessaryremedialactionhasbeenidentified?Whereaninternalauditfunctionexists,hasthecommitteeconsideredwhetheritwishesinternalaudittoconductadditionalworkuptoorattheyearendandifso,arearrangementsinplacetoensurethattheworkiscompletedandreportsmadeavailableonatimelybasis?Willtheauditcommitteeneedadditionalinformationtoenableittocompleteitsworkattheyearend,andifsohavearrangementsbeenmadeforthistobeprovidedonatimelybasis?Hastheauditcommitteeconsideredwhethertheboardmayneedtoamendthegroupstrategicplanincludingexpectationsoffuturegrowthandthegroup’sabilitytosustainitsbusinessmodel?Hasthegroupmonitoreditspositioninrelationtocontinuedvolatilityinthefinancialmarkets,includingitsexposuretoliquidityriskandcounterpartydefaultrisk?

Isthecommitteesatisfiedbytheprocessthattheboardhasconductedtoconcludethatthefinancialstatementsshouldbepreparedonagoingconcernbasis?Wasreferencemadeto“GoingConcernandFinancialReporting:GuidancefordirectorsoflistedcompaniesNovember1994”.

Isthecommitteesatisfiedthatproperconsiderationhasbeengiventocashflowforecastspreparedforatleast,butnotlimitedto,twelvemonthsfromthebalancesheetdateincludingananalysisofheadroomagainstavailablefacilities?Hasthecommitteeconsideredwhetherthereisaneedtoextendthecashflowforecastexercisetoevaluateissuesthatmayariseaftertheendoftheperiodcoveredbycashflowforecasts?

Isthecommitteesatisfiedthatappropriateevidencehasbeenobtainedaboutthegroup’sabilitytosecurenewortorenewfundingcommitments?Isadditionalevidenceneededabouttheintentionsofinvestorsandlenders?

Financial Reporting Council 5

Relianceonmodelsforcashflowandvaluationinformation

2008/09 Corporate Reports Key Questions for Audit Committees

Hasthecommitteeconsideredananalysisofthetermsofcurrentbankingfacilitiesandcovenants,andhasthisanalysisidentifiedrisksthatneedtobeaddressed?Ifso,areplansinplacetomanagethoserisks?

Isthecommitteesatisfiedthatfullconsiderationhasbeengiventoguarantees,indemnitiesorliquidityfacilitiesthathavebeenprovidedtootherentitiesthatthegroupmaybecalledontohonour?Havethedirectorsconsideredwhetherthegrouphastheresourcestomeetsuchobligationsshouldtheyarise?

Hastheauditcommitteeconsideredtheprocessesinplacetoensurethatappropriateproceduresandcontrolshavebeenappliedtothegroup’suseofmodelstogeneratecashflowandvaluationinformation,includingthechoiceandconsistentuseofkeyassumptions?

Istheauditcommitteesatisfiedthatkeymodelshavebeensubjecttoindependentanalysisandverification,forexamplebyinternalaudit?

Istheauditcommitteesatisfiedthatappropriatesensitivityanalysishasbeenconductedtoflexassumptionstoidentifyhowrobustthemodeloutputsareinpracticeandthattheassumptionsarefreefrombias?Isitclearthatthesensitivityanalysishasconsideredappropriatelythepotentialimpactofreasonablypossibleevents?Forexample,haverelationshipswiththirdpartiesincludingsuppliersandcustomersbeenreviewedinthelightofrecenteventsandhasthepotentialforthirdpartydefaultsbeentakenintoaccount?

Whereassetsarenottraded,perhapsbecausemarketsarenolongeractive,hasthecommitteesatisfieditselfthatappropriateadditionalprocedureshavebeenundertakentoestimatefairvaluesthroughtheselectionofmarket‐basedvariablesandtheuseofappropriateassumptions?

Wheremodelshavebeenusedtoestimatethevalueofassetswhichmustbetestedforimpairment,isthecommitteesatisfiedbytheproceduresadoptedtoestimatecashflowsandtheappropriateadjustmentsmadeforrisk?

6 Challenges for Audit Committees arising from current economic conditions (November 2008)

Significantaccountingandreportingjudgments

2008/09 Corporate Reports Key Questions for Audit Committees

Istheauditcommitteesatisfiedthatappropriateandbalanceddisclosureshavebeenmadeaboutgoingconcernandliquidityriskthatdrawonthespecificcircumstancesofthecompanyandthegroup?

Istheauditcommitteesatisfiedthatthebusinessreviewpresentstheprincipalrisksanduncertaintiesassociatedwiththegroup’sactivitiesinafairandtransparentway?Hasunnecessaryclutterbeenremovedandgenericcommentbeenkepttoaminimumsothatthekeymessageshavenotbeenobscured?

Hasthecommitteeconsideredwhetherthegroup’sbusinessreviewadequatelyaddressestheadditionalrequirementsintroducedbyrecentrevisionstothebusinessreviewrequirementsoftheCompaniesAct?Forexample,disclosureisnowrequiredofthemaintrendslikelytoaffectfuturebusinessdevelopment.Isthecommitteesatisfiedthatthebusinessreviewisconsistentwiththerestoftheannualreport?

Isthecommitteesatisfiedthatappropriatedisclosurehasbeenmadeofwriteoffsandpotentialwriteoffsofgoodwillorindividualassetsimpactedbycurrentevents,includinginformationaboutkeyassumptionsandsensitivityanalysis?Hasthecommitteeconsideredwhetheranyidentifiedimpairmentscouldbeeitherinsufficientorexcessive?

Hasthecommitteeconsideredwhethertheauditedfinancialstatementsdescribeallofthekeyjudgmentsabouttheapplicationofaccountingpoliciesandtheestimationuncertaintiesthatcouldresultinmateriallossesinthenextyear?Inparticular,haveallrelevantissuesthathaveconcernedmanagementduringtheyearandthathavebeendrawntotheattentionoftheboardand/ortheauditcommitteebeenconsideredfordisclosure?

Isthecommitteesatisfiedthatfullconsiderationhasbeengiventopostbalancesheeteventsuptothedateofapprovaloftheannualreportandaccounts?Arethereanysignificantadversetrendsincashflowsorassetvaluesoroff‐balancesheetarrangementsthatmayneedspecialmention?

Hasthecommitteeconsideredwhetherthereisaneedforadditionaldisclosuresaboutcompanycircumstancesinpreliminaryannouncementsorotherregulatoryreportsbeforetheannualreportispublished?Forexample,earlydisclosuremayneedtobeconsideredwhendirectorsfirstconcludethatsignificantdoubtsexistaboutgoingconcern.

Financial Reporting Council 7