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The Composition of the Committee
In accordance with the currently accepted Best Practice and Corporate Governance Guidelines, the Board appointed Audit Committee comprises of the following Non-Executive Directors of the Bank:
- Mr. B.R.L. Fernando (Chairman)
- Dr. H.S. Wanasinghe
- Mr. A.N. Fonseka
- Mr. D.S. Weerakkody
The Chairman of the Committee,
a Non-Executive Director, is a senior Chartered Accountant. Additionally,
Mr. A.T.P. Edirisinghe, a senior practicing Chartered Accountant with a wealth of experience in Audit, Accounting Standards and Financial Reporting, serves on the Committee in the capacity of a Consultant. The Committee is responsible and reports to the Board of Directors. The Managing Director and the Chief Financial Officer attend committee meetings by invitation. The Bank’s Deputy General Manager - Inspection, functions as the Secretary of the Committee.
Terms of Reference
The Charter of the Audit Committee clearly defines the terms of reference of the Audit Committee. The Charter is periodically reviewed and revised with the concurrence of the Board of Directors. This process ensures that new developments and concerns are adequately addressed. The role and functions of the Committee are further regulated by the rules governing the Audit Committee as specified by Section 3 (6) (ii) of the Banking Act Direction No. 11 of 2007 on ‘Corporate Governance for Licensed Commercial Banks in Sri Lanka’, ‘Rules on Corporate Governance’ of the Listing Rules of the Colombo Stock Exchange and ‘Code of Best Practice on Corporate Governance’ issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission.
The main objective of the Audit Committee is to assist the Board of Directors to effectively carry out its responsibilities relating to financial and other connected affairs of the Bank. The Committee is empowered to:
- Examine any matter relating to the financial and other connected affairs of the Bank
- Monitor all Internal and External Audit and Inspection Programmes
- Review Internal and External Audit Reports and follow up on recommendations
- Review the efficiency of Internal Control Systems and Procedures, in place
- Review the quality of Accounting Policies and their adherence to Statutory and Regulatory Compliance
- Review the Bank’s Annual Report and Accounts and Interim Financial Statements prepared for disclosure, before submission to the Board
- Ensure that a well managed sound financial reporting system is in place to provide timely reliable information to the Board of Directors, Regulatory Authorities, Management and all other stakeholders
- Ensure Bank’s policies are firmly committed to the highest standards of good corporate governance practices and operations conform to the highest ethical standards, in the best interests of all stakeholders
Meetings
The Committee held nine meetings during the year under review. The attendance of Committee Members at meetings is stated in the table on page 59. Managing Director/CEO, Chief Financial Officer and Deputy General Manager - Inspection attended the meetings by invitation. Members of the Senior Management of the Bank were invited to participate at meetings as and when required. The proceedings of the Audit Committee meetings are regularly reported to the Board of Directors.
Activities
The Committee carried out the following activities:
Financial Reporting
The Committee reviewed the effectiveness of the financial reporting system in place to ensure that
the information provided to the stakeholders is reliable and is in strict adherence and compliance to the requirements of the Sri Lanka Accounting Standards and disclosure requirements. The Annual Accounts and Interim Financial Statements prepared for disclosure, were reviewed by the Committee prior to submission to the Board for approval. Having assessed the internal financial controls, the Committee is of the view that adequate controls and procedures are in place to provide reasonable assurance that the Bank’s assets are safeguarded and that the financial position of the Bank is
well monitored.
Regulatory Compliance
The Bank’s procedures in place to ensure Compliance with Mandatory Banking and other Statutory Requirements were under close scrutiny. Through the quarterly statements submitted by the Corporate Management, the Committee monitors the due compliance with all requirements.
Managing Risks
The Committee reviewed the effectiveness of the procedures in place for identifying, assessing and managing all significant risks. Bank’s adherence to risk management measures approved
by the Board is reviewed biannually.
The members of the Corporate Management were invited to make presentations on Risk Management measures adopted in their areas of responsibility. Risk rating guidelines with an appropriate Risk Grading Matrix has been formulated for identifying and assessing the operational risks.
Internal Audit and Inspection
The Bank continued to engage the services of five firms of Chartered Accountants, approved by the Central Bank of Sri Lanka, to assist the Bank's Inspection Department, in carrying out branch inspections. The Committee regularly reviewed and monitored the internal audit and inspection functions and the performance of the Inspection Department. Over 250 Audit and Inspection reports on Branches and
Head Office Departments were examined to observe operational deficiencies and the recommendations were followed up. Members of the Committee also undertook visits to some of the
Branches in order to be better
appraised of branch operations.
External Audit
The Committee met with the Auditors prior to commencement and at the conclusion of the Annual Audit to discuss the audit scope, approach and methodology to be adopted and the findings of the audit. Non-Executive Directors had separate meetings with Auditors to ensure they had no cause to compromise on their independence. Auditors' Management Letter together with the Management's response thereto and the Audited Financial Statements were reviewed with the Auditors. The Committee reviewed the non-audit services provided by the Auditors to ensure that such services do not fall within the restricted services and provision of such services does not
impair the External Auditors independence and objectivity.
Internal Controls
The Committee regularly examined major decisions taken by the ‘Assets and Liabilities Committee’, ‘Credit Policy and Credit Risk Management Committee’, all exceptional items and unexpected losses charged to the Income Statement, long outstanding items in Bank's Chart of Accounts, credit quality and adherence to bad debts classification and provisioning policies. Credit monitoring procedures were reviewed and further strengthened.
The effectiveness of the internal control procedures in place for selected processes were carefully evaluated.
Good Governance
Highest standards in Corporate Good Governance and strict adherence to the requirements of Bank's Code of Ethics are ensured through close monitoring. Through the Code of Ethics all levels of staff have been educated and encouraged to resort to whistle blowing, when they suspect wrong doings or other improprieties. The Committee also ensures that appropriate procedures are in place to conduct independent investigations into all such incidents.
The Charter of the Audit Committee
The Charter was revised during the year with the concurrence of the Board.
Evaluation of the Committee
The other Members of the Board of Directors, through the annual evaluation conducted, has assessed the effectiveness of the Committee as satisfactory.
The Audit Committee has recommended to the Board of Directors that Messrs Ernst & Young be reappointed as Auditors for the financial year ending December 31, 2009 subject to the approval of shareholders at the next Annual General Meeting.
B.R.L. Fernando
Chairman - Audit Committee
Colombo
February 18, 2009 |
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