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Internal Audit Support of Audit Committees – What Works BestInternal Audit Support of Audit Committees – What Works Best

The Institute of Internal Auditors

Webcast Series on Sarbanes-Oxley

Session #5 – September 9, 2003

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The IIA Webcast The IIA Webcast ModeratorModerator

The IIA Webcast The IIA Webcast ModeratorModerator

Jim Key, CIA

Managing Partner

Shenandoah Group, L.L.P

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DisclaimerDisclaimer

The views expressed in this webcast are solely those of the panelists and moderators and do not necessarily reflect the views or policies of The Institute of Internal Auditors or its directors, officers, employees, and members.

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Series 2: Emerging Trends and Best Practices in Implementing SOA

Series 2: Emerging Trends and Best Practices in Implementing SOA

• May 21 - Section 404 Readiness Review: How to document your system of internal control. (Archived)

• June 10 - Helping your audit committee implement complaint handling. (Archived)

• July 8 - Leveraging the COSO framework to meet Section 404 requirements (Archived)

• August 12 - Project Administration – Setting and revising priorities in the wake of the “Final 404 Rules” (Archived)

• September 9 - Internal Audit support of Audit Committees – What works best

• September 30 - The Road Ahead – Meeting the challenges in complying with The Sarbanes-Oxley Act

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Webcast Series on SOAWebcast Series on SOA

Fostering Compliance with SOA: Internal Auditor’s Role

• Four sessions archived on IIA’s website and available on CD

• Originally aired January 28 – April 15, 2003

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AgendaAgenda

1:00 Introductions and Overview

1:10 Managing the Auditors – Janice Wilkins

1:20 Managing the Audit Committee Schedule - Norman Marks

1:30 Educating the Audit Committee – Jerry Ferenczy

1:40 Break

1:45 Questions and Answers - Panel

2:25 Wrap up - Jim Key

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Managing the Auditors -How Internal Audit Supports

the Audit Committee

Managing the Auditors -How Internal Audit Supports

the Audit Committee

Janice Wilkins

Vice President

Director, Internal Audit

Intel Corporation

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Supporting the Audit Committee

Supporting the Audit Committee

Board of Directors

Audit Committee

Co

mp

lia

nce

wit

h A

pp

lica

ble

Law

s &

R

egs

Internal Internal AuditAudit

External External AuditAudit

ManagementManagement

Rel

iab

ilit

y o

f F

inan

cial

Rep

ort

ing

Eff

ect

iven

ess

& E

ffic

ien

cy o

f O

per

atio

ns

Oversight of Financial Reporting Process & Internal Control

• Competency Assessment• Services & Fees• Audits & Reporting• AC Operations• Regulatory Compliance

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Competency AssessmentCompetency Assessment

• Independence and objectivity• Client and industry knowledge• GAAP and GAAS expertise• Proactive communications/responsiveness• Domestic and international staff quality• Internal quality control• Litigation• Negative press

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Services and FeesServices and Fees

• Regulatory compliance verification• Non-financial audit pre-approvals• Audit scope review • EA budget coordination and reporting • IA budget and staffing reviews• Benchmarking• EA contract re-bid• EA partner rotations• EA engagement team employment

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Audits and ReportingAudits and Reporting

• Enterprise, business unit and financial reporting risk assessments

• Controls evaluation and opinion• EA and IA audit coordination • Management Letter Comments coordination• Focus topic discussions• Anonymous reporting administration• Fraud investigations

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Audit Committee OperationsAudit Committee Operations

• AC charter development and review• Meeting agenda setting• Facilitate pre-earnings calls• Meeting minutes review• Annual planner • Annual AC self-assessment • Financial expert & independence assessments• D&O questionnaires review• Annual EA and IA assessments

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Regulatory ComplianceRegulatory Compliance

• Regulatory and emerging issues updates

• Ethics and compliance oversight and evaluation

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AgendaAgenda

1:00 Introductions and Overview

1:10 Managing the Auditors – Janice Wilkins

1:20 Managing the Audit Committee Schedule - Norman Marks

1:30 Educating the Audit Committee – Jerry Ferenczy

1:40 Break

1:45 Questions and Answers - Panel

2:25 Wrap up - Jim Key

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Managing the Audit Committee ScheduleManaging the Audit

Committee Schedule

Norman Marks

Vice President, Internal Audit

Solectron Corporation

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OutlineOutline

• Demands on the Audit Committee’s time

• Demands on management’s time

• The role of the CAE

• Tips and techniques

• Conclusions

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Demands on the A/C timeDemands on the A/C time

• Expectations = Detail• Per Korn-Ferry, A/C time doubled

• Sarbanes-Oxley, SEC, Listing Standards

• Courts expect best practices

• Greater liability (?)

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Demands on the A/C timeDemands on the A/C time

• Oversight of:– Financial Reporting– EA and IA (Internal Controls)– Whistleblower Process– Ethics Program– Risk Management

• Member training

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Demands on ManagementDemands on Management

• Preparation before & presentations at every meeting

• Actions after/between meetings

• Board focus on governance vs. management

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The Role of the CAEThe Role of the CAE

• Advisor to Audit Committee

• Advisor to Management

• Help identify “Best Practices”

• Often manage Audit Committee agenda

• Often prepare Audit Committee materials

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Tips and TechniquesTips and Techniques

• Delete unnecessary charter tasks

• Audit Committee checklist from charter

• Lay out agendas for full year

• Pre-reading materials and expectations

• Reviews, etc. through e-mail

• Information between meetings

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Delete TasksDelete Tasks

• Are all Committee activities necessary?

• Eliminate historic tasks

• Focus on governance vs. management

• Prioritize activities

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Committee ChecklistCommittee Checklist   

Charter Step

Review and reassess the adequacy of [the Committee’s] charter at least annually.

 X

 

Review the Company’s annual audited financial statements [i.e., those included on Form 10-K] prior to filing or distribution. Review should include discussion with management and independent auditors of significant issues regarding accounting principles, estimates, practices, and judgments. 

   X

Ma

rch

Ja

nu

ary

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Lay out yearLay out year

• Meetings with a theme (e.g., year-end)

• Move meetings to avoid calls (e.g., to coincide with 10-Q review)

• Long meetings once a year (e.g., for training)

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Pre-reading materialsPre-reading materials

• Provide hard and soft copy well in advance

• Members expected to read before meeting

• Questions to CAE, etc. by e-mail before meeting

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Reviews prior to meetingReviews prior to meeting

• Draft 10-Q, proxy, etc. sent to members early

• Questions posed and answered via e-mail

• At meeting, limit to confirmation that questions answered

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Between meetingsBetween meetings

• Don’t wait to share important information and handle through e-mail (e.g., audit reports)

• Stay in touch and talk to members

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ConclusionsConclusions

• The Audit Committee’s load considerably increased

• Members do not want to limit their activities and spend double the time

• They, management, and CAE can make meetings efficient with discipline and imagination

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AgendaAgenda

1:00 Introductions and Overview

1:10 Managing the Auditors – Janice Wilkins

1:20 Managing the Audit Committee Schedule - Norman Marks

1:30 Educating the Audit Committee – Jerry Ferenczy

1:40 Break

1:45 Questions and Answers - Panel

2:25 Wrap up - Jim Key

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Educating the Audit CommitteeEducating the

Audit Committee

Jerry Ferenczy, CPA, CISA, CPCU

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Audit Committees – the PastAudit Committees – the Past

• Met 3.3 times a year for less than 1 hour

• 1/3 did not regularly meet with IAD; 10% never met with them

• Had no required pre-existing skill sets; most committee members had no formal training or education plan

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Audit Committees – the Present

Audit Committees – the Present

• Meet average of 6 times a year; some as many as 16

• Are required to review IAD and risk management; must perform self evaluations

• Must have some degree of financial literacy

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The EffectThe Effect• Boards must look at more stuff in more

detail than ever before

• Boards typically have two different types of members

• Each type has different perspectives and needs

• CAE must be prepared for both types

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Suggestion # 1Suggestion # 1

Know Your Committee Members

“WHERE WE’VE BEEN HAS A LOT TO DO WITH WHERE WE ARE GOING.”

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Suggestion # 2Suggestion # 2

Know What’s Important

“These facts, if true, suggest that the directors consciously and intentionally disregarded

their responsibilities. . .

They simply did not care if they were making a material decision with adequate information.”

- the Disney decision

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Suggestion #3Suggestion #3

Share What You Know

• "You got to be careful if you don't know where you're going, because you might not get there."

– Yogi Berra

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ConclusionConclusion

“Those who fail to learn from the past are doomed

to repeat it.”

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Webcast SummaryWebcast Summary

• Internal Audit must support the Audit Committee in its new role as manager of the external auditors

• Assisting the Audit Committee in managing its schedule is now critical with impact of Sarbanes Oxley

• Educating the Audit Committee to serve its broadened role is essential

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Thank you for your participation!

Thank you for your participation!

Don’t miss our next Webcast series beginning

September 30, 2003