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    AG Presentation 2nd Annual Board Training 11 June 2021 Final

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    AG Presentation 2nd Annual Board Training 11 June 2021 Final

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    REJAY89
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    © All Rights Reserved
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    8 views15 pages

    AG Presentation 2nd Annual Board Training 11 June 2021 Final

    Uploaded by

    REJAY89

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 15

    The Role of the Board in Understanding

    and Contributing to Improvement of


    Audit Opinions

    CPA Nancy Gathungu, CBS


    Auditor-General of the Republic of Kenya

    ICPAK 2nd Annual Board Training Forum

    1
    Outline

    Mandate of OAG

    Responsibility for Financial Reporting

    Board Financial Oversight

    Audit Opinions – Board Involvement

    Conclusion

    2
    Mandate of the Office of the Auditor-General

    • The Office of the Auditor-General is established as an Independent Office


    under the Constitution of the Republic of Kenya.
    • Operationalized by the Public Audit Act,2015
    • The Constitution and the Public Audit Act, 2015 mandates the Auditor-
    General to;
    • Audit the accounts of all public entities and
    • Confirm whether public funds have been used in a lawful and effective
    manner
    • Conduct investigations on own initiative or complaint by a member of
    the public
    • Conciliation, mediation and negotiation

    Ultimately, our mandate is to influence the development of our nation


    and the delivery of quality and sustainable services to the people
    3
    Who is Responsible for Financial Reporting?
    Internal
    Audit

    Management
    - Prepare BoD External
    Financial Stakeholders
    Statements - Approve Auditors
    Financial Make decisions
    -Effective ICS Statements Audit based on
    -Oversight Financial financial
    financial reporting statements
    process
    Statements

    REGULATORS
    Review financial statements and oversee the performance of the Board and external
    auditors
    4
    Financial Reporting Responsibility
    • The Board has ultimate responsibility for overseeing the organization’s
    financial affairs
    • This requirement is even anchored in law
    • Companies Act
    • Sec 145 – Duty of care
    • Sec 635 and 653 – Responsibility for preparing financial statement and
    directors report
    • Sec 652 – Approval of financial statement
    • Sec 717/ 721 – Appointment of auditors
    • Mwongozo Governance Principles
    • Timely preparation of accurate financial statements
    • Establishment of effective processes and systems of risk management and
    internal controls
    • Cost effective procurement that delivers value for money

    5
    Board Financial Oversight
    • All directors in the Board are collectively responsible for meeting
    their obligations in relation to annual financial reporting.
    • Three critical roles of the Board
    1. Establishing and ensuring the organization’s compliance with proper
    financial systems and controls;
    2. Regularly evaluating the organization’s financial health; and
    3. Ensuring that the organization is on a financially sustainable path.
    • This requires the Board to have access to complete and accurate
    information about the financial position of the company and the
    underlying value drivers to enable them steer the company in the
    best long-term interests of shareowners
    • Therefore, every Board Member is required to understand the
    financial information being presented and the processes behind
    the preparation of such information
    6
    Board Financial Oversight Responsibilities
    Approve
    budget and
    set internal
    control
    framework
    Ensure
    audited Monitor
    financial financial
    statements performanc
    are filed e against
    with budget
    regulators

    Approve Review draft


    financial financial
    statements statements

    Engage with
    external
    auditors
    7
    Adopted from: Chartered Accountants Australia and New Zealand, 2017
    The Board and the Audit Process
    • The Board has a primary responsibility for the provision of
    information to investors and other users of the financial
    statements provided, to enable them make informed decisions.
    • The information provided must be;
    ✓relevant
    ✓useful
    ✓comparable
    ✓consistent
    ✓meaningful
    • This is mainly achieved through provision of audited financial
    information
    • Annual audits demonstrate transparency in corporate financial
    reporting
    8
    Audit Process
    Letter of Beginning of the audit cycle
    End of audit cycle understanding
    sent to the
    audited entity
    Follow-up of
    implementation of Entrance meeting held
    audit the Management of the
    recommendations entity

    Planning

    Final audit report issued


    Follow-up Execution Audit queries raised
    to Parliament/ Board/
    and feedback sought
    Shareholders

    Reporting

    Draft audit report issued


    to auditee and response Exit meeting held with
    sought Management
    Management
    Letter issued to
    Management and
    9
    response sought
    Audit Opinions

    • Audit opinion/report is the ultimate product of the audit process


    • Auditors use opinions/ reports to alert the public as to the
    transparency, reliability and accountability of entities
    • An audit opinion is a reflection of the integrity of the audit report
    and projects an image of the company/ organization
    • Public sector audit goes beyond the audit opinion;
    • Conclusion on lawfulness and effectiveness in use of public resources
    • Conclusion on effectiveness of internal controls, risk management and
    governance
    • Value for money

    10
    Types of Audit Opinions
    Unmodified/Unqualified Opinion
    • A clean report
    • Auditor “ I am satisfied with the company’s financial reporting”
    • Board “What we expect to receive”

    Modified/Qualified Opinion
    • Negative opinion about a company’s financial status
    • Auditor “ I am not confident about a specific process or
    transaction” e.g application of accounting principles and policies
    Adverse Opinion
    • Red flag, gross misstatements and potential for fraud
    • Auditor “company’s records haven’t been prepared according to
    accounting standards, principles, policies and practices

    Disclaimer of Opinion
    • Auditor “I cannot provide any opinion at all related to the financial
    statements”
    • Why? Management limited auditors ability to conduct a thorough
    audit or they couldn’t get satisfactory explanations for their
    questions 11
    How Board Involvement can Lead to Improved
    Audit Opinions

    ✓Approving the annual budget and monitoring adherence to the


    budget
    ✓Regular financial reporting review processes at each Board
    meeting
    ✓Ensuring compliance with laws, regulations, policies and
    procedures
    ✓Regular meetings with the auditors (internal/external) (Audit
    Committee) - before, during and after audit
    ✓Strengthening the internal control system
    ✓Enhancing independence of the internal audit function
    ✓Assessing and managing financial risks
    12
    How Board Involvement can Lead to Improved Audit
    Opinions?

    • Reviewing and approving the financial statements to


    determine;
    • whether the financial statements are prepared using the appropriate
    financial reporting framework
    • Reviewing the appropriateness of accounting policies and
    judgements used by Management in preparing financial
    statements
    • Monitoring, tracking and follow-up of implementation of
    external auditor’s recommendations – through Internal Audit

    13
    Conclusion
    • Directors are instrumental in how well an entity fulfils its financial
    reporting obligations
    • Directors are primarily and collectively responsible for the quality of
    the financial report
    • Directors are not expected to be accounting experts, but they are
    required to understand;
    • the financial information being presented
    • the process behind the preparation of such information
    • Sufficient and current knowledge of financial management and
    reporting requirements is key for high level review
    • Acquire the knowledge or procure the knowledge

    14
    15

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