AUDIT COMMITTEES What are they and why are they beneficial?

XYZ CO-OPERATIVE SOCIETY LIMITED & CONTROLLED ENTITIES ABN DIRECTORS’ DECLARATION The directors of the co-operative declare that: 1.The financial statements and notes, as set out on pages 5 to 20 are in accordance with the Corporations Act 2001: (a)comply with accounting standards and the Corporations Regulations 2001; and (b)give a true and fair view of the financial position as at 30 June 2004 and of the performance for the year ended on that date of the co-operative and economic entity. 2.In the directors’ opinion there are reasonable grounds to believe that the co-operative will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors Director Director Dated this 22 day of October 2004.

The auditors told me it was ok to sign!

Penalties –Fines up to $200,000 –Personally liable for insolvent trading

AUDIT COMMITTEES  What are they? An audit committee is a committee that assists the board of directors fulfill its corporate governance and overseeing responsibilities in relation to an entity’s financial reporting, internal control system, risk management system and internal and external audit function. Best Practice Guide, Audit Committees (AuASB, AARF, AICD, IIAA.)  Its role is to provide advice and recommendations to the board within the scope of its terms of reference.

Corporate governance and audit committees…….  Audit committees assist in discharging a board’s corporate governance responsibilities.  They do not in any way however absolve the individual directors on the board from their director responsibilities.

How do audit committees do this? An effective audit committee considers the following:  Accounting policies  Financial management  Internal controls  Risk management  Business policies & practices  Protection of assets  Compliance with laws and regulations

What will be the benefits? As a result of this  Improved credibility and quality of information  Improved efficiency of the board  Improved effectiveness of audit function  Improved communication between senior financial management and the board  Ethical culture

Is an audit committee relevant to your Co-op? Factors to consider  Size of business  Nature / complexity of business (risk)  Expertise of management  Expertise of board  Spread and number of members  Resources available

Formation of an audit committee Terms of reference  The purpose and objective  Authority  Communication  Review

Formation of an audit committee Membership of committee  Probably 3 people  Where possible independent board members  Financial and business skills  Term of appointment  Other

Meetings  Normal business practice  Agenda  Minutes  Frequency

Conclusion Key Benefits  Develops strong accounting and financial controls  Good ethics  Knowledgeable Board This is what all your members would want!

Questions The contents of this paper are for general information only. This paper should not be treated as professional advice and should not be relied upon without seeking specific advice from a solicitor, accountant or other suitably qualified professional. The author of this paper expressly disclaims all liability and responsibility for any loss or damage (including but not limited to consequential loss or damage, economic loss or loss of profits) arising directly or indirectly from reliance by any person upon the information contained in this paper. The author reserves copyright in this paper. No part of this paper may be reproduced in any way without the prior written consent of the author. Adapted from the Australian Accounting Research Foundation, Australian Institute of Company Directors and the Institute of Internal Auditors – Australia’s Best Practice Guide ‘Audit Committees’ (2001)