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Hello Kim,
1. If the board of ABC comany has 10 members, among which 5 of them are executive directors (EDs) and the remaining 5 of them are non-executive directors (NEDs), my questions are as follows:
a) The 5 EDs are all coming from the management, is it correct?
b) The 5 NEDs must be sitting in the Audit Committee. In other words, the person being appointed to the Audit Committe must sit on the Board.
2. All the significant control deficiency must be communicated to Those Charged With Governance (ie. Audit Committee).
For example, if the auditor discovered that a fraud (ie. significant control deficiency) was going on and the fraud involved EDs sitting on the Board. The auditor will avoid the Board and report the issue directly to Audit Committe. Is it correct?
Then what does the Audit Committe need to do with this info? Do they need to discuss the fraud with all the board members (including the EDs involved) in the Board meeting? I am a bit confused when I get to this point.
3. All the control weakness should be communicated to management. Does the management mentioned here include the Board?
In other words, control weakness should be communicated to both Board and Management, but does not need to be communicated to Audit Committee.
However, since the NEDs sitting on the Audit Committee will be the Board member, they will become aware of the control weakness through board meeting? It is correct?
Thank you.
Regards,
Marthewa) Yes
b) Not necessarily – see chapter 2 of OpenTuition’s AAA notes – the audit committee is not the only committee with NEDs
2) TCWG means the person(s) with responsibility for oversight (for accountability, etc), for example, an audit committee (where one exists).
Management fraud will be reported to the audit committee – not the executive board. What the audit committee does with the info depends on the specific circumstances (e.g. report it to the police, call for resignations, instigate a fraud investigation).Fraud and error is reported to an appropriate level – “management” may be an individual (e.g. the CEO) or the BoD as a whole – if a member of the BoD were implicated in wrongdoing the auditor reports TCWG.
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