Tasks and work of the External Audit Committee of the IMF

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Tasks and work of the External Audit Committee of
the IMF

• Pentti Hakkarainen
• Bank of Finland
• Swedish School of Economics and Business
  Administration Helsinki 16.2.2006

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Contents

• 1. Audit Committee
• Tasks/composition
• 2. IMFs External Audit Committee
• Similarities/differences with typical audit
  committee
• 3. EACs Terms of Reference
• 4. Work of the IMFs EAC
• Meetings/papers/briefings/opinions
• 5. Site visits and briefing to the Board
• 6. Audit Committee Best Practices

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1. Audit Committee

• Primary responsibility is to oversee on behalf of
  the board the integrity of the financial
  reporting controls and procedures and to protect
  the interest of shareholders and other
  stakeholders.
• Management day-to-day operation
• The board challenge the strategy and business
  and the decisions taken by executive management
• External audit firm assurance of presentation of
  financials
• Internal audit assess internal controls and
  accounting practices
• Charter/terms of reference
• Composition 3 6 members, non-executive1 ( a
  majority), all financially literate, expert (
  1)
• Independence perceived independence
• Evolving more and more mandatory trend towards
  more independency expanding to non-listed
  companies, international/special financial
  institutions and public entities.
• 1 Board structure 1-tier, 2-tier

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2. IMFs External Audit Committee

• Governance structure
• Board of Governors
• Executive Board, consisting of 24 EDs, chaired by
  MD(/DMDs)
• Management staff
• Executive Board meets 2 3/week, involved in
  on-going business decisions
• External Audit Committee (EAC) consists of 3
  members, non-executives, selected by the
  Executive Board, each from different member
  country, at least one from the big 6

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3. EACs Terms of Reference

• Purpose
• General oversight responsibilities for the
  external audit function
• Reviews the financial statements, including staff
  retirement plans, related financial reporting
  practices and the system of internal controls,
  including the audit process.
• Transmits the external audit reports to the Board
  of Governors, through MD and the Executive Board

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3. EACs Terms of Reference (continues)

• Responsibilities
• Financial and related reporting practices
• System of internal control
• Reporting
• Procedures
• Shall have access to information as needed to
  carry out its function, and will determine its
  own procedures
• Meets at least twice a year, in January and in
  June
• Chairman of the EAC shall give the Executive
  Board a briefing on the EACs work

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4. Work of the IMFs EAC

• EAC oversees the annual audit process
• Responsibility to ensure that the Funds audit
  process in comprehensive and of high quality
• EAC meets with
• IMFs external audit firm, Deloitte Touche
  (DT)
• Finance Department (FIN)
• Office of Internal Audit and Control (OIA)
• Technology General Services Department (TGS)
  and Ethics Officer
• Other relevant staff (legal etc.)
• Executive Board to report
• Comprises
• Chaired by Mr Pentti Hakkarainen, Member of the
  Board of the Bank of FinlandDr Len Konar, Member
  of the Board of the South African Reserve BankMr
  Satoshi Itoh, Professor at Chuo University
  Graduate School of Accounting in Japan

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5. Site visits and briefing to the Board

• Preparation
• Conference call with staff of FIN, OIA, TGS and
  DT
• Received regular information on relevant
  financial, reporting and audit-related
  developments from the IMF staff
• Intensive meetings and information gathering at
  site
• Briefing to the Board (CONFIDENTIAL) based on
  meetings, reviews, discussions etc.
• on e.g.
• Major financial developments
• Funds income base
• Funding arrangements for the debt relief
  operations
• Overdue obligations
• Establishment of the Exogenous Shocks Facility
• The value of the SDR and the interest rate
• Financial systems and internal controls the
  Control Units mandate

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5. Site visits and briefing to the Board
(continues)

• Report of the Task Force on
• Proposed audit plan for FY 200X with the external
  audit firm, DT
• Application of new accounting and reporting
  standards
• EACs previous report called for greater liaison
  and coordination between and the external
  audit firm ? comment on the outcome
• Status of OIAs work programme for FY 200X,
  summary results of audits, status of
  implementation of outstanding audit
  recommendations
• OIAs Quality Assessment Review
• Adoption of an independent whistle blowing
  facility
• EAC met with the Ethics Officer and were briefed
  on the existing channels and an
  interdepartmental work group is considering the
  issue
• Outcome of an informal Executive Board seminar
  on
• ? EAC supports greater information-sharing with
  the Board on finance-, audit- and control-related
  matters and, in this light, welcomes the
  introduction of periodic, regularly scheduled
  briefings of the Board on these matters.

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6. Audit Committee Best Practices(compiled by
Professor Satoshi Itoh)
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6. Audit Committee Best Practices
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6. Audit Committee Best Practices