Audit Committee's Top 10 Priorities

Audit Committee’s Top 10 Priorities

http://kudrin.ru

Tel.: +7 (985) 970 5654

http://www.kudrin.ru/

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



Priority # 2. Effective Internal Audit

Purposeand

Mandate

Competency Development

ResourcingSustaining People

Excellence

Tools and Technology

Operations

MethodologyKnowledge

Management Quality

Infrastructureand Operations

People

Governance


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



Priority # 3. Organization’s Key Business Risks Are Recognized

Compliance

Operations

Financial

Strategic

Market StructureGovernance

Stakeholder

Information

management

Systems

Intellectual

property

Legal

Process

Physical

assetsPeople

& CultureMarket

Liquidity

& Credit

Reporting

Capital

structure


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 BetterBu

siness

Strat

egy

Business Driversand Initiatives

Execu

tive M

anage

ment

Risks OversightActivities

COORDINATED APPROACH TO RISK

ALIGNED TO BUSINESS DRIVERS

Finance

Tax

Legal

IT

Transactions

Compliance

InternalAudit

Other Risk Functions

Other Committees

AuditCommittee

Board

Assess

Improve

Monitor

Executive Management

Internal Control

New Product Development

Opera

tions

and B

usine

ss Un

its

Gain NewBusiness

Procurement

Production

Distribution

CustomerSupport

Supp

ort Fu

nctio

ns

Monit

oring

and C

ontro

l Fun

ction

s

HR

Achieve Business

Objectives

Strategic

Operations

Financial

Compliance

Overs

ight

Coverage

Coordination Across The “Lines Of Defense”


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


Priority # 5. Internal Control Framework Assessment

Strategy

& Mandate

Monitor

Governance

People

Methods & Practices


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


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

Impro

veMonitor

ReactiveProactive Setting the Proper Tone

Code ofEthics

FraudPreventionPolicies

FraudRisk

Assessment

FraudControls

Monitoring

FraudAwarenessTraining

FraudResponse

Plan

http://kudrin.ru

Tel.: +7 (985) 970 5654



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



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

Exe

cuti

ve M

anag

emen

t

Foreign and DomesticDirect 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


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 regulatorshttp://kudrin.ru

Tel.: +7 (985) 970 5654



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



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



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
