- 10 Marks
Question
b)
Ghana Sugar Company Limited, a private company, has been in operation for many years. Owing to a rising need to raise additional capital, the shareholders have passed a resolution to convert the company into a public company and list it on the Ghana Stock Exchange. You have been contracted to help the Directors to carry the resolution through. During your preliminary discussion with the Directors, you realized that they were not very conversant with the listing rules of the Ghana Stock Exchange, and you drew their attention to the establishment of an Audit Committee as a condition for listing on the Ghana Stock Exchange.
The Directors agreed to discuss the establishment of the Audit Committee at the next emergency meeting and invited you to be present.
Required: Recommend the composition of the audit committee and describe its responsibilities to the Directors. (10 marks)
Answer
b)
Composition of the Audit Committee
- An Audit Committee is a sub-committee of the Board of Directors mandated to help the main board discharge its responsibilities in the area of achieving effective and transparent financial reporting.
- To play an independent role, the audit committee should be composed of at least three and a maximum of five members, the majority of whom should be non-executive directors.
- While the members are not required to be accounting and financial professionals, they should have sufficient knowledge and experience in financial matters, especially financial reporting requirements.
- The following executives of the company cannot be members of the committee but can be in attendance at meetings:
- The Chief Executive Officer
- The Financial Director or Chief Financial or Accounting Officer
- Head of Internal Audit
- The external auditor may also be invited when necessary to attend a meeting of the committee.
(5 marks)
Responsibilities of the Audit Committee
- The main roles and responsibilities of the audit committee include:
- Monitoring the integrity of the financial statements of the company and any formal announcements relating to the company’s performance, reviewing significant financial reporting judgments contained in them.
- Reviewing the company’s internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors or by the board itself, reviewing the company’s internal control and risk management systems.
- Monitoring and reviewing the effectiveness of the company’s internal audit function.
- Making recommendations to the board, for it to put to shareholders for their approval in the general meeting, in relation to the appointment, re-appointment, and removal of the external auditor, and approving the remuneration and terms of engagement of the external auditor.
- Reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into account relevant professional and regulatory requirements.
- Developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external firm, and reporting to the board identifying any matters in respect of which it considers that action and improvement are needed and making recommendations as to steps to be taken.
- Reporting to the board how it has discharged its responsibilities, including:
- How it has addressed significant issues arising in the financial statements.
- How it has addressed the effectiveness of the audit process.
- How the auditor’s objectivity and independence are safeguarded, where the auditor provided non-audit services.
(5 marks)
- Topic: Audit evidence, Audit-related services
- Series: NOV 2016
- Uploader: Kwame Aikins