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Home » Corporate Governance »Audit Committee Report
 
Audit Committee Report
   
IJM Corporation Berhad
IJM Plantations Berhad
   
During the financial year, the Audit Committee carried out its duties and responsibilities in accordance with its terms of reference and held discussions with the internal auditors, external auditors and relevant members of Management. The Audit Committee is of the view that no material misstatements or losses, contingencies or uncertainties have arisen, based on the reviews made and discussions held.

MEMBERSHIP AND TERMS OF REFERENCE OF THE AUDIT COMMITTEE

MEMBERSHIP

The Audit Committee is appointed by the Board of Directors from amongst the Non-Executive Directors and consists of three (3) members, all of whom are Independent Non-Executive Directors.

The Chairman of the Audit Committee, Mr Pushpanathan a/l S A Kanagarayar is a member of the Institute of Chartered Accountants of Scotland, the Malaysian Institute of Certified Public Accountants (?MICPA?) and the Malaysian Institute of Accountants (?MIA?). The other members of the Audit Committee are Tan Sri Abdul Halim bin Ali and Datuk Ir Hamzah bin Hasan.

MEETINGS AND MINUTES

Five (5) meetings were held during the financial year with the attendance of the Chief Financial Officer, Head of Internal Audit, senior representatives of the external auditors and the Company Secretary.

quorum consists of two (2) members present and both of whom must be Independent Directors. Other Board members and Senior Management may attend meetings upon the invitation of the Audit Committee. Both the internal and external auditors, too, may request a meeting if they consider that one is necessary.

During the financial year, the Chairman of the Audit Committee had engaged on a continuous basis with Senior Management, Head of Internal Audit and the external auditors, in order to keep abreast of matters and issues affecting the Group.

The Company Secretary acts as the secretary to the Audit Committee. Minutes of each meeting are distributed electronically to each Board member, and the Chairman of the Audit Committee reports on key issues discussed at each meeting of the Board.

Details of the Audit Committee members' attendance are tabled below:

AUTHORITY AND DUTIES

Click to view the terms of reference of the Audit Committee.

REVIEW OF THE AUDIT COMMITTEE

An annual assessment and evaluation on the performance and effectiveness of the Audit Committee was undertaken by the Board of Directors for the financial year ended 31 March 2017. The Audit Committee was assessed based on four (4) key areas, namely effectiveness and quality, internal and external audit, risk management and internal control, and financial reporting, to determine whether the Audit Committee had carried out its duties in accordance with its terms of reference.

The Board is satisfied that the Audit Committee and its members have discharged their functions, duties and responsibilities in accordance with the Audit Committee?s terms of reference.

SUMMARY OF ACTIVITIES FOR THE FINANCIAL YEAR

During the year, the Audit Committee carried out the following activities:

Financial Reporting

  • Reviewed the quarterly financial results and announcements as well as the year end financial statements of the Group, and recommended them for approval by the Board;
  • In the review of the quarterly financial results and annual audited financial statements, the Audit Committee discussed with Management and the external auditors, amongst others, the accounting principles and standards that were applied and their judgement exercised on the items that may affect the financial results and statements; and
  • Confirmed with Management and the external auditors that the Company?s and Group?s annual audited financial statements have been prepared in compliance with applicable Financial Reporting Standards.

Internal Audit

  • Reviewed and approved the annual audit plan proposed by the internal auditors to ensure the adequacy of the scope and coverage of work;
  • Reviewed the effectiveness of the audit process, organisation structure, resource requirements (adequacy and suitability) for the year and assessed the performance of the overall Internal Audit function;
  • The Audit Committee met with the Head of Internal Audit twice during the year, without the presence of Management, to review key issues within their sphere of coverage and responsibility. During the private session with the Head of Internal Audit, it was noted that there were no major concerns from the Head of Internal Audit and she conveyed that internal audit had been receiving full cooperation from the Management and staff;
  • Reviewed the audit reports presented by the internal auditors on their findings and recommendations with respect to system and control weaknesses. The Audit Committee then considered those recommendations including the Management?s responses thereto, before proposing that those control weaknesses be rectified and recommendations for improvements be implemented;
  • Reviewed the internal auditors findings on the significant whistle-blowing cases, if any, and management?s responses and resolutions thereon; and
  • Reviewed the report on the verification of allocation of options and shares conducted by the internal auditors in relation to the Employee Share Option Scheme and Employee Share Grant Scheme under the Long Term Incentive Plan (?LTIP?) of the Company that it is in compliance with the criteria set out in the By-Laws of the LTIP, that has been disclosed by the Company to the employees of the Group.

External Audit

  • Reviewed and endorsed the external auditors? audit strategy, audit plan and scope of work for the year;
  • Exercised oversight over the relationship with the external auditors to ensure that their coverage is focused and that suitable overlap with the work of internal audit is achieved;
  • Reviewed the assistance given by internal auditors to the external auditors;
  • The Audit Committee deliberated on the external auditors? presentation of:
    • the terms, areas of responsibility, associated duties and scope of the audit as set out in the external auditors? engagement letter;
    • the overall work plan and fee proposal;
    • the major issues that arose during the course of the audit and their resolution;
    • key accounting and audit judgements;
    • the unadjusted differences identified during the audit;
    • recommendations made by them in their management letters and the adequacy of Management’s responses thereto;
  • Reviewed and approved the provision of non-audit services by the external auditors that were agreed to prior to the commencement of their work and confirmed as permissible for them to undertake, as provided under the By-Laws of the Malaysian Institute of Accountants.
  • The amount of external audit fees and non-audit fees incurred for the financial year ended 31 March 2017 were as follows:



    The non-audit services rendered included tax compliance and advisory services.

  • The Audit Committee met with the external auditors twice during the year, without the presence of Management, to review key issues within their sphere of coverage and responsibility. During the private session with the external auditors, it was noted that there were no major concerns from the external auditors and they conveyed that they had been receiving full cooperation from the Management and staff;
  • Reviewed the external auditors report to the Audit Committee;
  • Reviewed, assessed and monitored the performance, suitability and independence of the external auditors pursuant to the External Auditors Policy (?the Policy?). The Audit Committee undertook an annual assessment to assess the performance, suitability and independence of the external auditors based on, amongst others, the quality of service, adequacy of resources, communication and interaction, as well as independence, objectivity and professional skepticism. The external auditors provide an annual confirmation of their independence in accordance with the terms of all professional and regulatory requirements.
    Pursuant to the Policy, the engagement and concurring partners responsible for the Group audit are rotated at least every five (5) financial years.
    Following the review of the external auditors? effectiveness and independence, the Audit Committee concluded that there was nothing in the performance of the external auditors which required a change and that the relevant independence continues to be met. Accordingly, the Board was recommended to re-appoint PricewaterhouseCoopers as auditors of the Company. A resolution for their re-appointment will be tabled for approval at the forthcoming Annual General Meeting; and
  • Recommended the proposed audit fee for the Board?s approval.

Risk Management Committee

  • Reviewed the Risk Management Committee?s reports, assessed the adequacy and effectiveness of the risk management framework and the appropriateness of Management?s responses to key risk areas and proposed recommendations for improvements to be implemented.

Related Party Transactions

  • Reviewed the related party transactions that arose within the Group to ensure that the transactions are fair and reasonable to, and are not to the detriment of, the minority shareholders.

TRAINING

During the year, all the Audit Committee members have attended various seminars, training programmes and conferences. Click to view Audit Committee members profile.

INTERNAL AUDIT FUNCTION

The Group?s Internal Audit function is carried out by the Internal Audit Department (?IAD?) which is headed by Ms Ong Ai Lin, who is a member of the MICPA, MIA and an Associate member of the Institute of Internal Auditors (AIIA) and reports directly to the Audit Committee. The internal auditors have direct access to the Audit Committee and the Chief Executive Officer & Managing Director. The Audit Committee is satisfied that the internal auditors? independence have been maintained as adequate safeguards are in place. All internal auditors have signed the annual declaration that they were and had been independent, objective and in compliance with the Code of Ethics and Conduct of IJM Corporation Berhad (?IJM?), MIA, and The Institute of Internal Auditors in carrying out their duties for the financial year. The Audit Committee remained satisfied that the Internal Audit function had sufficient resources and is able to access information to undertake its duties effectively.

The Internal Audit function provides to the Board (primarily via the Audit Committee) and to Management reasonable assurance on the effectiveness of the Group?s systems of internal control and the adequacy of these systems to manage business risks and to safeguard the Group?s assets and resources.

The Internal Audit Charter sets out the purpose, functions, scope and responsibilities of the Internal Audit function and how it maintains independence from the first and second line of defence by management of the Group. The four main functions of Internal Audit are to:

  • Assess and report on the effectiveness of the design and operation of the framework of controls which enable risks to be assessed and managed;
  • Assess and report on the effectiveness of management actions to address deficiencies in the framework of controls;
  • Investigate and report on cases of suspected employee fraud and malpractice, if any; and
  • Undertake designated consulting services for management provided that they do not threaten the function?s independence from management.

The Internal Audit Plan for 2016-2017 which was approved by the Audit Committee in February 2016 reflected the priorities in the Group?s 2016-2017 Operational Plan and were prioritised following a risk-based assessment of the business and a review against the Group?s risk policies. The reviews carried out covered an extensive sample of controls over all risk types, business units and entities. During the year, the Internal Audit Plan for 2017-2018 was reviewed and approved by the Audit Committee in February 2017.

The IAD adopts a risk based auditing approach, using the International Professional Practices Framework (IPPF), prioritising audit assignments based on the Group?s business activity, risk management and past audit findings. It evaluated the adequacy and effectiveness of key controls in responding to risks within the organisation?s governance, operations and information systems, in terms of:

  • Reliability and integrity of financial and operational information;
  • Effectiveness and efficiency of operations;
  • Safeguarding of assets; and
  • Compliance with relevant laws, regulations and contractual obligations.

All internal control deficiencies were reported to the appropriate levels of management when identified. The Audit Committee received quarterly reports from the IAD on audit reviews carried out, management?s response to the findings and progress in addressing identified issues. The management members were made responsible for ensuring that corrective actions on reported control deficiencies were taken within the required timeframes. IAD conducted follow-up audits on key engagements to ensure that the corrective actions were implemented appropriately. In this respect, IAD has added value by enhancing the governance, risk management and control processes within the Group.

All internal control deficiencies were reported to the appropriate levels of management when identified. The Audit Committee received quarterly reports from the IAD on audit reviews carried out, management?s responses to the findings and progress in addressing identified issues. The management members were made responsible for ensuring that corrective actions on reported control deficiencies were taken within the required timeframes. IAD conducted follow-up audits on key engagements to ensure that the corrective actions were implemented appropriately. In this respect, IAD has added value to enhancing the governance, risk management and control processes within the Group.

The Audit Committee reviewed and approved the IAD?s financial budget and human resource requirements to ensure that the function is adequately resourced.

The total cost incurred in managing the IAD for the financial year under review was RM4.2 million (FY2016: RM4.8 million).

A summary of internal audit cost distribution is as follows:

INTERNAL AUDIT ACTIVITIES FOR THE FINANCIAL YEAR

During the financial year, the IAD had completed and reported on seventy-one (71) audit assignments where periodic testings were conducted and while providing independent assessments covering the Construction, Property, Industry, and Infrastructure Divisions, as well as the overseas operations of the Group and functional audits of Group Support Services. These included special audits conducted on the basis of special requests from the Board, Audit Committee, Senior Management or those arising from the Group?s Whistle Blowing Programme.

The IAD, during the financial year, provided internal audit services to IJM Plantations Berhad, and in an effort to provide value added services, it also plays an active advisory role in the review and improvement of existing internal controls within the Group. IAD had completed and reported on twenty-eight (28) audit assignments to the Audit Committee of IJM Plantations Berhad which were in addition to the 71 assignments as mentioned above.

Currently, IAD comprises twenty-four (24) auditors with approximately 44,000 available man-hours per annum. All auditors have been trained during the year on, and had started to implement, the use of audit management and data analytics software (ACL) in efforts to increase the efficiency and effectiveness of the function?s audit management process and data analytics capabilities.

The level of expertise and professionalism at the end of the financial year end of 2016-2017 is as follows:.

IJM is a Corporate Member of The Institute of Internal Auditors Malaysia.

Updated: 18 Aug 2017