The Board of Directors of IOI Corporation Berhad is pleased to present the report on the Audit and Risk Management Committee (the “Committee”) of the Board for the financial year ended 30 June 2012.
The Audit Committee was established on 24 March 1994 in line with Bursa Malaysia Securities Berhad’s Main Market Listing Requirements.
With effect from 6 September 2012, the Audit Committee was renamed as the Audit and Risk Management Committee.
A. mEmBERS
dATUK hJ MOhd KhALIL B dATO’ hJ MOhd NOOR Chairman
Senior Independent Non-Executive Director
d A T U K K A R O W N A K A R A N @ K A R U N A K A R A N A/L RAMASAMY
Member
Independent Non-Executive Director
QUAh POh KEAT
CPA (M), CA (M), FCCA, ACMA, MIT (M) Member
Independent Non-Executive Director
B. C O m P O S I T I O N A N D T E R m S O F REFERENCE
1. Membership
The Committee shall be appointed by the Board of Directors from amongst the Directors and shall consist of no fewer than three (3) members. All the Committee members must be Non- Executive Directors with a majority of them being Independent Non-Executive Directors.
All the Committee members should be financially literate with at least one (1) Director who is a member of the Malaysian Institute of Accountants or alternatively a person who must have at least three (3) years working experience and have passed the examinations specified in Part I of the First Schedule of the Accountants Act, 1967 or is a member of one of the associations specified in Part II of the said Schedule or fulfils such other requirements as prescribed or approved by Bursa Malaysia Securities Berhad.
The Committee shall elect a Chairman from among its members who is an Independent Non-Executive Director.
In the event that a member of the Committee resigns, dies or for any other reason ceases to be a member with the result that the number of members is reduced below three (3), the Board of Directors shall, within three (3) months of that event, appoint such number of new members as may be required to make up the minimum of three (3) members.
The term of office and performance of the Committee and each of its members shall be reviewed by the Board at least once every three (3) years.
2. Objectives
The primary objectives of the Committee are to:
i. Provide assistance to the Board in fulfilling its fiduciary responsibilities, particularly in the areas relating to the Company and its subsidiaries’ accounting and management controls, financial reporting and business ethics policies.
ii. Provide greater emphasis on the audit function by serving as the focal point for communication between Non-Committee Directors, the external auditors, internal auditors and the management and providing a forum for discussion that is independent of the management.
It is to be the Board’s principal agent in assuring the independence of the Company’s external auditors, the integrity of the management and the adequacy of disclosures to shareholders.
iii. Undertake such additional duties as may be appropriate and necessary to assist the Board.
AUDIT AND RISK MANAGEMENT
3. Authority
The Committee is authorised by the Board to:
i. Investigate any matter within its terms of reference and have full and unrestricted access to any information pertaining to the Company and the Group.
ii. Have direct communication channels with both the external auditors and internal auditors.
iii. Full access to any employee or member of the management.
iv. Be able to convene meetings with the external auditors, the internal auditors or both, without the attendance of other Directors and employees, whenever deemed necessary.
The Committee is also authorised by the Board to have the necessary resources and to obtain outside legal or other independent professional advice it considers necessary and reasonable for the performance of its duties.
4. duties and Responsibilities
In fulfilling its primary objectives, the Committee will need to undertake the following duties and responsibilities summarised below:
i. To review with management on a periodic basis, the Company’s general policies, procedures and controls especially in relation to management accounting, financial reporting, risk management and business ethics.
ii. To consider the appointment of the external auditors, the terms of reference of their appointment, the audit fee and any questions of resignation or dismissal.
iii. To review with the external auditors their audit plan, scope and nature of the audit for the Company and the Group.
iv. To review the external auditors’ management letter and management’s response.
v. To review with the external auditors with regard to problems and reservations arising from their interim and final audits.
vi. To review with the external auditors the audit report and their evaluation of the system of internal controls.
vii. To review the assistance given by employees of the Company or Group to the external auditors.
viii. To do the following, in relation to the internal audit function:
• review the adequacy of the scope, functions, competency and resources of the internal audit function and that it has the necessary authority to carry out its work.
• review the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken and whether or not appropriate action is taken on the recommendations of the internal audit function.
• review any appraisal or assessment of the performance of members of the internal audit function.
• approve any appointment or termination of senior staff members of the internal audit function.
• take cognisance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning.
ix. To review the Company and the Group’s quarterly financial statements and annual financial statements before submission to the Board.
The review shall focus on:
• any changes in or implementation of major accounting policies and practices.
• significant and unusual events.
• significant adjustments and issues arising from the audit.
• the going concern assumption.
• compliance with the applicable approved accounting standards and other legal requirements.
x. To review any related party transaction and conflict of interest situations that may arise within the Company or the Group including any transaction, procedure or course of conduct that raises questions of management integrity.
xi. To undertake such other responsibilities as may be agreed to by the Committee and the Board.
xii. To consider the report, major findings and management’s response of any internal investigations carried out by the internal auditors.
xiii. To verify the allocation of options pursuant to Executive Share Option Scheme (“ESOS”) in compliance with the criteria of the ESOS at the end of each financial year.
5. Conduct of Meetings Number of Meetings
The Committee shall meet at least five (5) times a year. The Chairman shall also convene a meeting of the Committee if requested to do so by any member, the management or the internal or external auditors to consider any matter within the scope and responsibilities of the Committee.
Attendance of Meetings
The head of finance and head of internal audit division and representatives of the external auditors shall normally be invited to attend meetings of the Committee. However, the Committee shall meet with the external auditors without executive board members present at least twice a year. The Committee may also invite other Directors and employees to attend any of its meeting to assist in resolving and clarifying matters raised.
Quorum
A quorum shall consist of a majority of Independent Non- Executive Directors and shall not be less than two (2).
6. Secretary to the Committee and Minutes
The Company Secretary shall be the secretary of the Committee and as a reporting procedure, the minutes shall be circulated to all members of the Board.
C. ACTIVITIES
During the year, the Committee discharged its duties and responsibilities in accordance with its terms of reference.
The main activities undertaken by the Committee were as follows:
i. Review of the external auditors’ scope of work and their audit plan and discuss results of their examinations and recommendations.
ii. Review with the external auditors the results of their audit, the audit report and internal control recommendations in respect of control weaknesses noted in the course of their audit.
iii. Review the audited financial statements before recommending them for the Board of Directors’ approval.
iv. Review the Company’s compliance, in particular the quarterly and year end financial statements with the Main Market Listing Requirements of Bursa Malaysia Securities Berhad and the applicable approved accounting standards issued by the Malaysian Accounting Standards Board.
v. Review of the quarterly unaudited financial results announcements of the Group and the Company prior to recommending them to the Board for consideration and approval.
vi. Review of the Internal Audit Department’s resource requirement, programmes and plan for the financial year to ensure adequate coverage over the activities of the respective business units and the annual assessment of the Internal Audit Department’s performance.
vii. Review of the audit reports presented by Internal Audit Department on findings and recommendations and management’s responses thereto and ensure that material findings are adequately addressed by management.
viii. Review of the related party transactions entered into by the Group.
ix. Review and assess the risk management activities and risk review reports of the Group.
x. Review of the extent of the Group’s compliance with the relevant provisions set out under the Malaysian Code on Corporate Governance for the purpose of preparing the Statement on Corporate Governance and Statement on Internal Control pursuant to the Main Market Listing Requirements of Bursa Malaysia Securities Berhad.
xi. Review of investigation report by Internal Audit Department on findings and recommendations of allegation on conflict of interests involving an employee on tender and award of contracts.
Number of Meetings and details of Attendance
Five (5) meetings were held during the financial year ended 30 June 2012. The attendance record of each member was as follows:
Members
Total Number of Meetings
Number of Meetings Attended Datuk Hj Mohd Khalil b
Dato’ Hj Mohd Noor
5 5
Datuk Karownakaran @ Karunakaran a/l Ramasamy
5 5
Quah Poh Keat 5 5
Two (2) meetings were held subsequent to the financial year end to the date of Directors’ Report and were attended by the following members:
Members
Total Number of Meetings
Number of Meetings Attended Datuk Hj Mohd Khalil b
Dato’ Hj Mohd Noor
2 2
Datuk Karownakaran @ Karunakaran a/l Ramasamy
2 2
Quah Poh Keat 2 2
D. INTERNAL AUDIT FUNCTION
The annual Internal Audit plan is approved by the Committee at the beginning of each financial year.
The Internal Audit Department performs routine audit on and reviews all operating units within the Group, with emphasis on principal risk areas. Internal Audit adopts a risk-based approach towards planning and conduct of audits, which is partly guided by an Enterprise Risk Management Framework.
Impact on IOI’s vision is taken into consideration in determining the risk level as a holistic approach in contributing to the achievement of the Group’s objective and in enhancing shareholders’ value.
127 audit assignments were completed during the financial year on various operating units of the Group covering plantation, properties, manufacturing, hotels and other sectors. Audit reports were issued to the Committee and Board incorporating findings, recommendations to improve on the weaknesses noted in the course of the audits and management comments on the findings. An established system has been put in place to ensure that all remedial actions have been taken on the agreed audit issues and recommendations highlighted in the audit reports. Significant issues and matters unsatisfactorily resolved would be highlighted to the Committee quarterly.
The total costs incurred for the internal audit function of the Group for the financial year ended 30 June 2012 was RM2,878,000 (2011: RM2,703,000).
INTRODUCTION
The Board recognises the paramount importance of good corporate governance to the success of the Group. It strives to ensure that a high standard of corporate governance is being practised throughout the Group in ensuring continuous and sustainable growth for the interests of all its stakeholders.
The Group’s corporate governance practices are guided by its
“Vision IOI” whereby responsible and balanced commercial success is to be achieved by addressing the interests of all stakeholders. A set of core values guides our employees at all levels in the conduct and management of the business and affairs of the Group. We believe that good corporate governance results in quantifiable and sustainable long term success and value for shareholders as well as all other stakeholders, as reflected by our performance and track record over the years.
During the financial year, the Group has received numerous accolades and awards in recognition of its efforts.
In relation to the principles and recommendations of the Malaysian Code on Corporate Governance (“the Code”), the Board is pleased to provide the following statement, which outlines how the Group has applied the principles laid down in the Code. Except where specifically identified, the Board has generally complied with the best practices set out in the Code.