AUDIT COMMITTEESAUDIT COMMITTEES

What are they and why are they What are they and why are they beneficial?beneficial?

XYZ CO-OPERATIVE SOCIETY LIMITEDXYZ CO-OPERATIVE SOCIETY LIMITED& CONTROLLED ENTITIES& CONTROLLED ENTITIES

ABN 12 345 678 910ABN 12 345 678 910DIRECTORS’ DECLARATIONDIRECTORS’ DECLARATION

The directors of the co-operative declare that: The directors of the co-operative declare that:

1.1. The financial statements and notes, as set out on pages 5 to 20 are in accordance with the The financial statements and notes, as set out on pages 5 to 20 are in accordance with the Corporations Act 2001:Corporations Act 2001:

(a)(a) comply with accounting standards and the Corporations Regulations 2001; and comply with accounting standards and the Corporations Regulations 2001; and

(b)(b) give a true and fair view of the financial position as at 30 June 2004 and of the give a true and fair view of the financial position as at 30 June 2004 and of the performance for the year ended on that date of the co-operative and economic performance for the year ended on that date of the co-operative and economic entity. entity.

2.2. In the directors’ opinion there are reasonable grounds to believe that the co-operative will be able In the directors’ opinion there are reasonable grounds to believe that the co-operative will be able to pay its debts as and when they become due and payable. to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors. This declaration is made in accordance with a resolution of the Board of Directors.

..............................................................................................................DirectorDirector

................................................................................................................DirectorDirector

Dated this 22 day of October 2004. Dated this 22 day of October 2004.

The auditors told me it was ok to sign!

PenaltiesPenalties

– Fines up to Fines up to $200,000$200,000

– Personally liable for Personally liable for insolvent tradinginsolvent trading

AUDIT COMMITTEESAUDIT COMMITTEES What are they?What are they?

An audit committee is a committee that assists the An audit committee is a committee that assists the board of directors fulfill its corporate governance and board of directors fulfill its corporate governance and overseeing responsibilities in relation to an entity’s overseeing responsibilities in relation to an entity’s financial reporting, internal control system, risk financial reporting, internal control system, risk management system and internal and external audit management system and internal and external audit function. Best Practice Guide, Audit Committees function. Best Practice Guide, Audit Committees (AuASB, AARF, AICD, IIAA.)(AuASB, AARF, AICD, IIAA.)

Its role is to provide advice and recommendations to Its role is to provide advice and recommendations to the board within the scope of its terms of reference. the board within the scope of its terms of reference.

Corporate governance and audit Corporate governance and audit committees…….committees…….

Audit committees assist in discharging a Audit committees assist in discharging a board’s corporate governance board’s corporate governance responsibilities.responsibilities.

They They do notdo not in any way however in any way however absolve the individual directors on the absolve the individual directors on the board from their director responsibilitiesboard from their director responsibilities ..

How do audit committees do How do audit committees do this?this?An effective audit committee considers the An effective audit committee considers the

following:following: Accounting policiesAccounting policies Financial managementFinancial management Internal controlsInternal controls Risk managementRisk management Business policies & practicesBusiness policies & practices Protection of assetsProtection of assets Compliance with laws and regulationsCompliance with laws and regulations

What will be the benefits?What will be the benefits?

As a result of thisAs a result of this Improved credibility and quality of information Improved credibility and quality of information Improved efficiency of the boardImproved efficiency of the board Improved effectiveness of audit functionImproved effectiveness of audit function Improved communication between senior financial Improved communication between senior financial

management and the boardmanagement and the board Ethical cultureEthical culture

Is an audit committee relevant to Is an audit committee relevant to your Co-op?your Co-op?Factors to considerFactors to consider Size of businessSize of business Nature / complexity of business (risk)Nature / complexity of business (risk) Expertise of managementExpertise of management Expertise of boardExpertise of board Spread and number of membersSpread and number of members Resources availableResources available

Formation of an audit committeeFormation of an audit committee

Terms of referenceTerms of reference The purpose and objectiveThe purpose and objective AuthorityAuthority CommunicationCommunication ReviewReview

Formation of an audit committeeFormation of an audit committee

Membership of committeeMembership of committee Probably 3 peopleProbably 3 people Where possible independent board membersWhere possible independent board members Financial and business skillsFinancial and business skills Term of appointmentTerm of appointment OtherOther

MeetingsMeetings

Normal business practiceNormal business practice AgendaAgenda MinutesMinutes FrequencyFrequency

ConclusionConclusion

Key BenefitsKey Benefits Develops strong accounting and financial controlsDevelops strong accounting and financial controls Good ethicsGood ethics Knowledgeable BoardKnowledgeable Board

This is what all your members would want!This is what all your members would want!

QuestionsQuestions

The contents of this paper are for general information only. This paper should not be treated as professional advice and should not be relied upon without seeking specific advice from a solicitor, accountant or other suitably qualified professional. The author of this paper expressly disclaims all liability and responsibility for any loss or damage (including but not limited to consequential loss or damage, economic loss or loss of profits) arising directly or indirectly from reliance by any person upon the information contained in this paper. The author reserves copyright in this paper. No part of this paper may be reproduced in any way without the prior written consent of the author.

Adapted from the Australian Accounting Research Foundation, Australian Institute of Company Directors and the Institute of Internal Auditors – Australia’s Best Practice Guide ‘Audit Committees’ (2001)