Establish (constitute)
1. The Board of Directors hereby decides to establish a committee within the Board of Directors, namely the Audit Committee.
2. The members of the audit committee shall be appointed by the board of directors from the non-executive directors of the company, and shall consist of at least three members. The quorum is two.
3. The chairman of the audit committee shall be appointed by the board of directors.
4. The chief financial officer, the head of internal audit and the external audit representative should usually attend the meeting. Other board members should also have the right to attend. In any case, in the absence of the Executive Director, the Committee and the External Auditor should meet at least once a year.
5. The company secretary shall be the secretary of the committee.
6. Meetings shall be held at least twice a year. If external auditors think it is necessary, they can also ask for a meeting.
7. The Board of Directors authorized the Audit Committee to investigate all activities within its terms of reference. The Audit Committee has the right to collect any information it needs from any employee, and all employees must cooperate with all the requirements put forward by the Audit Committee.
8. The Board of Directors authorizes the Committee to obtain advice from external legal experts or other independent experts, and if necessary, ensure that external attendees have relevant experience and professional knowledge.
9. The responsibilities of the Audit Committee include:
(a) To consider the appointment of external auditors, audit fees and any matters related to dismissal. (b) Before starting the audit, discuss the nature and scope of the audit with the external auditors, and ensure mutual coordination between them when more than one audit company is involved. (c) Before submitting the financial statements to the board of directors, review the interim and annual reports, paying special attention to the following contents: (i) any changes in accounting policies and practices; (2) The main part of subjective judgment; (iii) Major adjustments arising from the audit; (4) Assumption of going concern; (v) Compliance with accounting standards; (six) abide by the securities trading regulations and laws. (d) Discuss the problems and doubts found in the interim and final audits, as well as any issues that auditors may wish to discuss; (Management personnel should not be present) (e) Review the management suggestions of external auditors and the responses of company management personnel; (f) Review the company's internal control system report (contained in the annual report) before it is signed by the board of directors; (g) Review the internal audit plan (when the internal audit function exists) to ensure the coordination between internal and external auditors, and ensure that the resources of the internal audit function are fully allocated and have a proper position in the company; (h) To consider the main results of internal inspection and the management's response, as well as other issues determined by the Board of Directors.
10. The secretary shall circulate the minutes of the audit committee to all board members. Audit Committee system is an important institutional arrangement in an effective corporate governance structure, which is developed under the impetus of relevant professional organizations, legislatures and enterprises themselves. As an independent financial force in the board of directors, the audit committee strengthens the independence of CPA audit and the authenticity and reliability of the company's financial report information.
Since 1967, the American Institute of Certified Public Accountants first formally put forward the proposal of establishing audit committees composed of non-executive directors in all listed companies, various professional organizations and institutions have been conducting various studies. The responsibility of the audit committee is one of the most important aspects.
1979 A special committee of the American Institute of Certified Public Accountants specializing in the audit committee system provided a proposal on the responsibilities of the audit committee to encourage listed companies to set up audit committees. It is believed that the main duty of the audit committee is to supervise and inspect the authenticity and fairness of the company's financial reports and coordinate with external auditors. This report emphasizes the responsibility of the Audit Committee to coordinate external and internal audits and supervise internal control. Its core content is to suggest that the audit committee should have three functions: supervising internal control, checking financial reports, evaluating and guiding the audit work related to the company. It provided an operational guide for American listed companies to set up audit committees at that time.
Since then, other organizations have submitted reports on the responsibilities of the audit Committee. The responsibilities of the audit committee in these reports are basically extended on the basis of the report of American Institute of Certified Accountants (ICAP) 1979, such as the report of Ridway Committee 1985, the public report of American Committee against False Financial Reporting 1987, the report of Public Oversight Committee 1993, and the public oversight committee/.
On June 7, 2002, 65438, China promulgated the "Guidelines for the Governance of Listed Companies". Article 52 of the Guidelines stipulates that the board of directors of a listed company may set up an audit committee according to the resolution of the shareholders' meeting. This is the first time that China has incorporated the proposal of setting up an audit committee into the guidelines. The standard also clearly stipulates the main responsibilities of China's audit committee: (1) proposing to hire or replace external audit institutions; (2) Supervise the internal audit system of the company and its implementation; (3) Responsible for the communication between internal audit and external audit; (4) Review the company's financial information and its disclosure; (5) Review the internal control system of the company. This is a summary of the responsibilities of China Audit Committee, including the following specific contents:
I. Reviewing and evaluating the annual financial report
The management of the company shall prepare a true and lawful financial report in accordance with generally accepted accounting standards and relevant disclosure rules, and the audit committee shall review and evaluate the financial report to test whether it is true and lawful. The audit committee mainly supervises the financial report through internal audit and external audit, and obtains relevant information. Members of the audit committee should discuss with internal auditors and external auditors, and be alert to the important liquidation accounts and problems disclosed by external auditors during the audit. Find important problems early so as to solve them in time. During the evaluation and review of the annual financial report, the Committee should focus on the following issues:
(1) Accounting policies. If the existing accounting policies have new accounting policies or new application methods, then the audit committee should pay attention to these problems and understand the nature and results of the new and changed policies and their applications. The Committee should also pay attention to the role and connotation of existing accounting policies in controversial or emerging fields, and members of the Committee should understand all important accounting policies and procedures of the company.
(2) Accounting estimation. For important accounting estimates in financial statements, the audit committee shall judge the rationality and fairness of listed accounting estimates and their changes. At the same time, we should also estimate the nature of the company's preparation and review the preparation activities with the management and external auditors.
(3) The difference between accounting affairs and managers. External auditors should make some suggestions to the audit committee, explaining their differences with management on some accounts, and the nature and solutions of disclosure, including consulting services between the company and other external accountants. The Committee should ensure that these issues do not potentially affect financial reporting.
(4) Audit adjustment. Any important adjustments and disclosures made by the external auditor that are not made by the Company shall be reported to the Audit Committee. The Committee shall also review and discuss the summary of incorrect adjustments made by external auditors.
Second, select, evaluate and replace external auditors to improve the quality of external audit
Every company should confirm that the external auditor is responsible to the audit committee and the board of directors, and it should be stipulated in the articles of association of the audit committee, including that the external auditor is ultimately responsible to the board of directors, and the board of directors and its audit committee have the right to select, evaluate and replace the external auditor.
When hiring an accounting firm, the audit committee shall evaluate the independence and professional competence of certified public accountants with reference to the Independent Auditing Standards. When evaluating the behavior of external auditors, the Committee should consider the quality of audit and other services, as well as the efficiency of the services provided.
Because the management of the company can decide which accounting firm provides non-audit services according to the company's operation and management, which may affect the independence of accounting firms. Therefore, when evaluating the independence of accounting firms and certified public accountants, the audit committee must know whether accounting firms also provide non-audit services for the company and how much it costs. Through communication with accounting firms and certified public accountants, evaluate whether non-audit services damage the independence of certified public accountants.
In the audit process, certified public accountants should communicate with the audit committee on the problems found in the audit and the weak links of internal control.
Three. Supervision of internal audit institutions
Internal audit institutions are an important tool to help audit committees perform their duties. Internal auditors can help the audit committee to understand the risk and control of the company and the reliability of the company's financial information. The audit committee can also use the work and reports of internal auditors to supplement the work of external auditors.
Therefore, the audit committee should review the audit scope and efficiency of internal auditors and the ability of internal audit institutions to achieve their goals at least once a year.
In order to have an effective internal audit institution, internal auditors must have the right to communicate directly with the audit Committee.
In order to supervise other behaviors of internal auditors, the audit committee also carried out work in the following aspects: regularly reviewing the internal audit charter of the company; Supervise the list, implementation and dismissal of internal auditors, review the budget of internal audit institutions and the placement of employees; Review the internal audit activity plan and its subsequent changes; Supervise the cooperation between internal and external auditors in audit work; Review internal audit reports and management's response to these reports.
Fourth, supervise internal control through financial reports and improve the corporate governance structure.
Internal control is a process realized by the board of directors, audit committee, management organization, internal auditors and other employees, aiming at providing reasonable protection for financial reports, laws and regulations and operations. As pointed out in COSO report, the audit committee should play a substantive role in establishing internal control and strengthening internal control supervision, so that the board of directors of the company can supervise the management.
COSO report very formally acknowledged the supervisory role of audit committee in internal control. In addition, the Audit Committee is also responsible for supervising the company's management's compliance with laws and regulations, ethical behavior, conflicts of interest, etc., and should be highly vigilant in these aspects. In fact, these aspects constitute the main components of corporate governance, and from the setting of the audit committee, it belongs to the board of directors and is an effective part of the corporate governance structure system, so the audit committee should shoulder the responsibility of governance without hesitation.
In this way, supervising internal control and evaluating corporate governance has become an important responsibility of the audit committee under the modern corporate governance structure. Ideally, the Committee should be composed of at least three people, which is also recommended by the Canterbury Committee of the United Kingdom and the Hong Kong Institute of Accountants. The Hong Kong (United) Stock Exchange also adopted this method, but it was difficult to find enough qualified audit committee members in a small place like Hong Kong at first, so the Hong Kong Stock Exchange relaxed the standard to "at least two members".
All authorities are well aware of it. All members of the audit committee must be non-executive directors, and most of these non-executive directors should be independent.
You will hear the definitions and descriptions of "non-executive director" and "independent non-executive director" in other places, but for the purpose of simply explaining me, "non-executive director" refers to a director who does not work for the company full-time and is not included in the management of the company; "Independent" means that the only connection between directors and the company is to be appointed as a non-executive director.
There are no special requirements or qualifications for members of the audit committee; The necessary conditions for the personnel of the audit committee depend on the designation of the responsibilities of the audit committee by the board of directors. Different responsibilities define different requirements for personnel. In addition, the audit committee can benefit from the different experiences of its members. Therefore, there is no separate detailed description of the preparations for completing the duties of the audit Committee. In any case, the following contents are useful for members of the Audit Committee to complete their inspection and supervision of financial reports and internal and external audits.
1. The most important thing about business experience is rich business experience. This experience can be directly applied to the decisions that many audit committee members must make, for example, whether to require external auditors to do work other than auditing financial statements, and whether to guide internal audit departments to analyze specific areas in company operations. When making such a decision, nothing can replace the comprehensive business judgment of experienced managers.
2. Understanding the role of auditors is very useful for members of the audit committee to have a basic understanding of the role of external audit and internal audit. To some extent, familiarity with the basic concepts of professional auditing standards can help Committee members understand the role of external auditors and the limitations of audit procedures.
3. Understand the main accounting and reporting standards. Audit Committee members can also benefit from knowing the main accounting and reporting rules related to the company's financial statements. For example, understand the importance of accounting policies that must be disclosed in the notes to financial statements. It is also very helpful to know information that may affect the company's major accounting and reporting policies, or to know changes in accounting standards that may affect the company's financial reporting. It is also helpful to be familiar with the application of information technology in corporate financial reporting procedures.
We don't expect members of the audit committee to become accounting and auditing experts. Because the treasurer and auditor will attend the meeting and make suggestions on these matters. But in any case, the preparation condition of an audit committee member should be able to ask relevant questions and give relevant evaluation answers. The board of directors is responsible for the preparation of interim reports and annual reports, which can fairly reflect the reported matters and follow all necessary disclosure requirements. The Audit Committee will assist the Board of Directors by independently auditing the financial reports (including any other reports or statements issued by the Board of Directors). These reviews should focus on the quality of reported earnings and the complete fairness of disclosure.
Audit procedures usually revolve around the audit committee's consideration of the following aspects:
A. appropriateness of significant accounting policies
The audit committee shall consider whether the accounting policies adopted by the company conform to Hong Kong GAAP or other appropriate accounting standards, and they shall carefully consider whether the company's standards are inconsistent with relevant accounting practice standards, and whether the reasons for all differences are reasonable. Moreover, the audit Committee should consider whether the selected accounting policies are suitable for the company's situation and whether there are any policies that are more suitable for the company.
B. Judgment results and accounting estimates
In order to prepare objective and fair financial statements, managers often make estimates, for example, when the outcome of a special event is uncertain (managers will make estimates). Accounting estimation has jumped out of the scope of using traditional accounting internal control processing system procedures to record repeated transactions. Studies have shown that a large number of financial report frauds that have occurred can be attributed to deliberately wrong accounting estimates. The audit committee should carefully review the accounting estimates to ensure that the management's estimates are reasonable.
C. Adequacy and understandability of disclosure
Members of the audit committee shall prove that all relevant matters have been properly disclosed in the financial statements, among which the disclosure of related party transactions and all abnormal events should be paid special attention.
D. Inconsistencies between financial statements
When reviewing financial statements, the audit committee should be alert to any inconsistency. The audit committee should also be convinced that the directors' report and the chairman's statement fairly describe the company's performance and are consistent with the views given in the financial statements. The audit committee should further consider whether the financial statements are consistent with the reports sent to tax officials or regulatory agencies.
E. Major non-repetitive items that may be regarded as abnormal.
The audit committee shall consider the handling and disclosure of abnormal events. Any major non-repetitive events may be regarded as abnormal and may need to be emphasized in the financial statements. Examples of abnormal events include asset procurement and disposal, contingent liabilities and litigation.
F. Major audit adjustments
The Audit Committee shall review all major audit adjustments. The audit committee should also assess whether it is necessary to investigate the cause of the error that led to the adjustment.
G auditor's concerns and unadjusted audit differences
The Audit Committee shall consider the results of careful discussion or the subject of discussion or dispute between the company manager and the external auditor. Ensuring that the risks faced by enterprises are properly identified and managed should be the focus of the board of directors. Risk management needs to establish and maintain an effective internal control system. The internal control system includes executable policies and procedures selected by all management authorities to ensure orderly and effective operation. This includes observing the policies formulated by managers, protecting the safety of assets, preventing and detecting fraud and errors, keeping correct and complete accounting records, and preparing reliable financial information in time.
The audit committee should be convinced that managers have systematically identified the main risks faced by enterprises and maintained an appropriate control environment. In particular, the audit committee should supervise the management's strategy to ensure that the company implements appropriate internal controls and make these internal controls operate effectively.
The internal control matters considered by the Audit Committee shall include:
* The effectiveness of business control and financial control;
* Reliability and timeliness of internal and external reports, and compliance with applicable laws, regulations and internal policies.
* In order to pay attention to internal control, members of the audit committee should expect to arrange fixed-point investigations and review documents related to the company's internal control system to familiarize themselves with these regulations. The Audit Committee shall also review all routine reports submitted by internal auditors and management suggestions submitted by external auditors to find out the weaknesses of internal control. The audit committee should also be aware of the actions taken by managers to address these weaknesses. The audit committee shall consider whether there are special risks that need special attention or the guidance of auditors. A. qualifications of external auditors and quality of audit services
The audit committee shall annually consider the qualifications of external auditors, supervise their service quality and consider the reasonableness of fees. When evaluating their performance, the audit committee should discuss the audit results with external auditors and get feedback from managers. The audit committee may also consider the nature of other services provided by external auditors and their impact on auditor independence, including management consulting services.
B. Evaluation of audit scope and audit results
Before the annual audit begins, the audit committee shall discuss the audit scope with the management and external auditors. This gives the Audit Committee an opportunity to consider whether the audit plan pays due attention to the areas of concern to both the Audit Committee and the management. When the external auditor completes the specific on-site audit work and the first draft of financial statements, the audit committee shall discuss the key audit results with the external auditor.
C. Divergence of views
External auditors should be independent and can use their best professional judgment to guide their work. Sometimes, external auditors and managers will disagree on issues such as the appropriateness of accounting treatment or the adequacy of disclosure. These differences of opinion may usually be related to the judgment results and accounting estimates. Although this difference of opinion is usually resolved in the discussion between the manager and the external auditor, the audit committee can still provide a useful place in this process, and in any case, it should understand the key issues discussed and solved with the manager. Since the Audit Committee is concerned about internal audit, its members should receive and review copies of all reports issued by internal auditors and the management's response to these reports. The audit committee should monitor all major differences of opinion.
* The Board of Auditors may also examine:
:: The objectives and operation of the internal audit function;
* The performance of the internal audit function and the adequacy of its available resources;
* The main problems reported by internal auditors;
* Cooperation and collaboration between internal auditors and external auditors;
* It may be more appropriate for the head of the internal audit department to report directly to the chairman of the audit committee, so as to strengthen the independence of the internal audit function; As a committee of the board of directors, the board of directors may sometimes invite the audit committee to consider issues outside the normal business scope, such as financial reporting, internal control and auditing. For example, the audit committee may:
* Review major transactions that do not form part of the company's normal business;
* review whether it complies with laws, regulations and legal requirements;