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Audit Committee's Top 10 Priorities

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Communication. Effective Internal Audit. Key Business Risks. Ensuring Effective Risk Management. Internal Control Framework Assessment. Organizational Ethics / Fraud Prevention. Financial Reporting Accuracy. Ensuring Tax Risks Are Measured. Ensuring Compliance with Laws & Corporate Governance Rules. Conflict of Interest and Inside Information.

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Audit Committee's Top 10 Priorities

  1. 1. Audit Committee’s Top 10 Priorities http://kudrin.ru Tel.: +7 (985) 970 5654
  2. 2. June 2008 Audit Committee’s Top 10 PrioritiesPage 1 Priority # 1. Communication ► Chief Executive Officer ► Chief Financial Officer ► Other Management board members ► Auditors ► Chief Risk Officer / Head of Internal Control ► Head of Corporate Development ► Inside and outside counsel ► Head of IT / Chief Information Officer ► Tax Officer ► Head of Purchasing ► Head of Sales http://kudrin.ru Tel.: +7 (985) 970 5654
  3. 3. June 2008 Audit Committee’s Top 10 PrioritiesPage 2 Priority # 2. Effective Internal Audit Purpose and Mandate Competency Development Resourcing Sustaining People Excellence Tools and Technology Operations Methodology Knowledge Management Quality Infrastructure and Operations People Governance
  4. 4. June 2008 Audit Committee’s Top 10 PrioritiesPage 3 What Are Our Clients Telling Us About Their Current IA Challenges? ► Expectations of the IA function are increasing ► Risk assessment and audit planning - coverage of the “right risks” ► Audit coverage in areas requiring special knowledge - contracts, major capital programs, fraud, IT, acquisitions, tax ► “War for Talent”: staff recruitment, development, career- pathing and retention ► Adding value through process and control improvement recommendations, sharing of best practices, and assisting to implement major change initiatives ► Maintaining proper investments in internal audit methodology, technology, knowledge, and learning programs ► High quality audit coverage provided around the globe http://kudrin.ru Tel.: +7 (985) 970 5654
  5. 5. June 2008 Audit Committee’s Top 10 PrioritiesPage 4 Priority # 3. Organization’s Key Business Risks Are Recognized Compliance Operations Financial Strategic Market Structure Governance Stakeholder Information management Systems Intellectual property Legal Process Physical assets People & Culture Market Liquidity & Credit Reporting Capital structure
  6. 6. June 2008 Audit Committee’s Top 10 PrioritiesPage 5 Priority # 4. Ensuring Effective Risk Management Earnings and Operating Margins Asset and Capital Management Revenue and Market Share Reputation and Brand Keep Us Out of Trouble Make Our Business BetterBusinessStrategy Business Drivers and Initiatives ExecutiveManagement Risks OversightActivities COORDINATED APPROACH TO RISK ALIGNED TO BUSINESS DRIVERS Finance Tax Legal IT Transactions Compliance Internal Audit Other Risk Functions Other Committees Audit Committee Board Assess Improve Monitor Executive Management Internal Control New Product Development OperationsandBusinessUnits Gain New Business Procurement Production Distribution Customer Support SupportFunctions MonitoringandControlFunctions HR Achieve Business Objectives Strategic Operations Financial Compliance Oversight Coverage Coordination Across The “Lines Of Defense”
  7. 7. June 2008 Audit Committee’s Top 10 PrioritiesPage 6 An Ernst & Young survey of board members listed the five “best practices for risk management” as: Risk Management Leading Practices 1. Clear ownership of risk within the company 2. Appropriate internal mechanisms to discuss/communicate risk 3. Formal process to identify risks specifically relating to corporate objectives 4. Active board-level involvement in managing risk 5. Specific policy governing communications on risk with major investors and other external stakeholders Source: Ernst & Young, Board Members on Risk Survey
  8. 8. June 2008 Audit Committee’s Top 10 PrioritiesPage 7 Priority # 5. Internal Control Framework Assessment Strategy & Mandate Monitor Governance People Methods & Practices
  9. 9. June 2008 Audit Committee’s Top 10 PrioritiesPage 8 Evaluating Internal Control Components  Tone At The Top  Strategies & Objectives  Policy & Procedures  Organizational Structure  Communication Governance People Methods & Practices  Culture  Alignment & Coordination  Competence & Capabilities  Roles & Responsibilities  Performance Measurement  Risk Identification & Assessment  Control Design & Effectiveness  Process Improvement & Efficiency  Monitoring & Escalation  Reporting
  10. 10. June 2008 Audit Committee’s Top 10 PrioritiesPage 9 Priority # 6. Organizational Ethics / Fraud Prevention Assess • Determine whether each program element has been implemented • Determine whether each program element meets its objective Improve • Aid in implementing program elements • Assist in executing program elements Monitor • Periodically test the effectiveness of program elements Communicate Assess Improve Monitor ReactiveProactiveSetting the Proper Tone Code of Ethics Fraud Prevention Policies Fraud Risk Assessment Fraud Controls Monitoring Fraud Awareness Training Fraud Response Plan http://kudrin.ru Tel.: +7 (985) 970 5654
  11. 11. June 2008 Audit Committee’s Top 10 PrioritiesPage 10 Priority # 7. Financial Reporting Accuracy Concerns about financial accuracy may include: ►completeness of financial disclosures ►significant business and accounting policy changes ►correct and truthful reporting ►interim reviews of financial statements ►monitoring auditors’ independence http://kudrin.ru Tel.: +7 (985) 970 5654
  12. 12. June 2008 Audit Committee’s Top 10 PrioritiesPage 11 Priority # 8. Ensuring Tax Risks Are Measured Keep Us Out of Trouble Make Our Business Better • Tax provision process • Tax internal controls • Tax accounting and reporting • Forecasting • Tax compliance process • Filing requirements • Controversy management • Transfer pricing • Indirect taxes • Customs and duties • Human resources taxes • Tax department operations • Tax embedded in business processes • Planning and transactions • Due diligence and structuring • Tax management and governance ExecutiveManagement Foreign and Domestic Direct and Indirect Taxes Identify and Prioritize Tax Risks Assess Improve Monitor Mitigate Tax Risks and Improve Performance People, Processes, Controls, Technology Achieve Business Objectives Strategic Compliance Financial Operations Strategic Operations Financial Compliance
  13. 13. June 2008 Audit Committee’s Top 10 PrioritiesPage 12 Why is Tax Such a High Risk Area? ► Every transaction has tax consequences that vary by jurisdiction and constantly change ► Complex rules under tax laws and accounting ► Significant use of estimates and judgment ► Financial reporting systems often based on management reporting, not legal-entity basis ► Lack of control over data inputs ► Lack of communication among tax, financial accounting, and budgeting ► Lack of accountants trained in tax-related standards ► True-up in following year may cause restatement issues ► Increasing focus as move to risk-based approach ► Conflicting objectives of regulators http://kudrin.ru Tel.: +7 (985) 970 5654
  14. 14. June 2008 Audit Committee’s Top 10 PrioritiesPage 13 Priority # 9. Ensuring Compliance with Laws & Corporate Governance Rules ► Review the system for monitoring compliance with laws and regulations ► Establish procedures for submission, receipt, retention and treatment of complaint regarding accounting, internal accounting controls, or auditing matters ► Review the findings of examinations and audits ► Review the process for communicating the code of conduct to company personnel ► Obtain regular updates from management and company legal counsel http://kudrin.ru Tel.: +7 (985) 970 5654
  15. 15. June 2008 Audit Committee’s Top 10 PrioritiesPage 14 Priority # 10. Conflict of Interest and Inside Information Audit committee’s means of getting ensured: ► Ongoing independent monitoring over conflict of interest is essential ► Internal and external auditors are to be involved ► Policy requiring written notice of insider sales should be adopted http://kudrin.ru Tel.: +7 (985) 970 5654
  16. 16. June 2008 Audit Committee’s Top 10 PrioritiesPage 15 Speakers Martin Wiedemann Partner, Head of Business Risk Services, Russia & the CIS Vasily Kudrin Senior Manager, Business Risk Services, Russia & the CIS http://kudrin.ru Tel.: +7 (985) 970 5654

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