Composition of the Board Audit Committee
The Board Audit Committee appointed by and responsible to the Board of Directors of Citizens Development Business Finance PLC consists of three Non-Executive Directors all of them are members of recognized professional bodies and possess wide ranging financial, commercial and management experience. The biographical details of the members of the Board Audit Committee are set out in the Board of Directors profiles section of the Annual Report. The Chairman of the Committee is a fellow member of The Institute of Chartered Accountants of Sri Lanka. Ms P R W Perera functions as the Chairman of the Audit Committee.
The Committee Members as at 31 March 2021
- Ms P R W Perera: Independent Non-Executive Director
(Appointed to the Committee w.e.f 16August 2020) - Prof P N Gamage: Independent Non-Executive Director
(Appointed to the Committee w.e.f 31January 2021) - Mr J P Abhayarathne:
Non-Executive Director
(Appointed to the Committee w.e.f 31January 2021)
Charter of the Committee
The scope and responsibilities of the Board Audit Committee emanates from its Terms of Reference which is periodically reviewed and revised with the concurrence of the Board of Directors. The process ensures that new developments and concerns are adequately addressed. The Committee is responsible to the Board of Directors and reports on its activities regularly. The Board Audit Committee also assists the Board in its general oversight of financial reporting, internal controls and functions relating to internal and external audits.
Role and Responsibilities
The main objective of the Board Audit Committee is to assist the Board of Directors in exercising its fiduciary responsibilities towards its stakeholders. The Committee is empowered by the Board to:
- Ensure that the financial reporting system in place is effective and well managed in order to provide accurate, appropriate and timely information to the Board, Regulatory Authorities and other stakeholders.
- Review the Annual Financial Statements and Interim Financial Statements prior to publication to ensure compliance with statutory and regulatory requirements, accounting standards and accounting policies which are consistently applied.
- Evaluate the adequacy, effectiveness of Risk Management Systems and Internal Controls of the Company.
- Assess the independence and review adequacy of the scope, functions and resources of the Internal Audit Department.
- Review and monitor the External Auditors’ independence, objectivity and effectiveness of the audit process.
- Ensure that sound Corporate Governance practices are upheld within the Company.
Meetings
The Board Audit Committee held six meetings during the period under review which included two meetings with the External Auditors without the presence of the Executive Directors and Management. The quorum for a meeting of the Committee is two Board Audit Committee members.
The Chief Executive Officer, the Chief Financial Officer, the Head of Internal Audit and other Directors attend meetings of the Committee by standing invitation. The Committee also invited members of the Senior Management of the Company to participate in the meetings from time to time on a need basis. The External Auditors also attend meetings whenever they are invited to be present.
The Head of Internal Audit functions as the Secretary to the Board Audit Committee. Proceedings of these meetings with adequate details of matters discussed are regularly reported to
the Board.
The attendance of the Committee members at the meetings was as follows:
Name of the Director | Eligibility | Attendance |
Ms P R W Perera: Independent Non-Executive Director | 4 | 4 |
Prof P N Gamage: Independent Non-Executive Director | 1 | 1 |
Mr J P Abhayarathne: Non-Executive Director | 1 | 1 |
Mr R Mohamed: Independent Non-Executive Director (Retired w.e.f 16 August 2020) | 2 | 2 |
Prof A S Dharamasiri: Independent Non-Executive Director (Retired w.e.f 31 January 2021) | 5 | 5 |
Mr J R A Corera: Independent Non-Executive Director (Resigned from the Committee w.e.f 31 January 2021) | 5 | 5 |
Reporting to the Board
The Minutes of the Committee meetings are tabled at Board Meetings at least every quarter, enabling all Board members to have access to them.
Activities in the financial year 2020/2021
The Committee carried out the following activities:
Financial Reporting
The Committee reviewed the interim and year-end financial statements and obtained the approval of the Board, prior to their publication. These reviews facilitated the Committee to monitor compliance with SLFRS/LKAS and the other regulations and also to ensure the integrity of the information provided to the Company’s stakeholders.
The Committee reviewed the revised Policy and Procedure Manual of Financial Reporting and Operations during the financial year. Further, the Committee reviewed the Policy manual on principles and methodologies including Expected Credit Losses computation on Credit Card Operations under SLFRS 9- “Financial Instruments” adopted by the management during the financial year.
In addition to the above, the Committee also reviewed an external independent opinion obtained on Accounting Treatment for Income Recognition under Moratorium granted due to COVID-19.
The Committee encourages to continuously strengthen the processes, internal controls, management information system, risk management and reports required for validation and compliance in line with SLFRS 9 on “Financial Instruments”.
Internal Control over Financial Reporting
In line with the Section 10 (2)(b) of the Finance Companies Direction No. 03 of 2008 as amended by the Direction No.06 of 2013,the Company is required to comply the said direction and assess the effectiveness of the Internal Control Over Financial Reporting as at 31 March 2021.
Internal Audit Department of the Company carried out a series of walk through tests to establish their adequacy of documented processes and made appropriate recommendations where necessary. Based on the Internal Auditors’ assessments, the Board has concluded that as at 31 March 2021, the Company’s Internal Control over Financial Reporting was effective.
Internal Audit
The Committee approved the Internal Audit Plan for the financial year and also monitored and reviewed the scope, extent and effectiveness of the activities of the Internal Audit Department. The Committee also reviewed and monitored the progress of the Internal Audit Plan during the financial year, along with its resource requirements. The Committee has had sufficient interaction with the Head of Internal Audit throughout the year.
The Committee continuously reviewed to ensure that appropriate measures and actions have been taken to manage the risks identified during the first and second waves of the COVID-19 pandemic. A centralized monitoring process was commenced on selected high risk areas of the business operations by the Internal Audit Department as directed by the Board Audit Committee.
During the year the Committee also reviewed the audit reports covering matters pertaining to Financial Reporting, Branches, Departments, Information System Audits and Special Investigations and also followed up the implementation of audit recommendations. Audit findings presented in the reports were prioritized based on the level of risk involved. The Board Audit Committee advised the Corporate Management to take precautionary measures on significant audit findings. Internal Audit reports were made available to the External Auditors as well.
External Auditors
The Board Audit Committee assisted the Board in engaging the External Auditors for the audit service in compliance with regulatory provisions. The Committee also reviewed the non-audit services provided by the External Auditors to ensure that they do not lead to impairment of the External Auditors’ independence and objectivity.
The Management Letter issued by the External Auditors in respect of the financial year ended 31 March 2020 was considered by the Committee and corrective action is being pursued wherever such action is warranted.
Prior to commencement of the annual audit, the Committee discussed with the External Auditors, their audit plan, audit approach, and matters relating to the nature and scope of the audit.
The Committee met the External Auditors on two occasions during the financial year without the Executive Directors and the Management being present, to ensure that there was no limitation of scope in relation to the Audit and to allow for full disclosure of any matters, which could have had a negative impact on the effectiveness of the external audit. The Committee concluded that there was no such cause for concern.
The Committee also reviewed the service period of the engagement of the External Audit Partner to ensure that it has not exceeded five years.
The Audit Committee having considered the independence and performance of the External Auditors KPMG (Chartered Accountants) recommend that they be re-appointed as the Company’s statutory auditors for the financial year ending 31 March 2022, subject to the approval of shareholders at the forthcoming Annual General Meeting.
Statutory and Regulatory Compliance
The Committee reviewed the procedures established by management for compliance with the requirements of the regulatory bodies. The Compliance Officer submitted a report to the Board Audit Committee on a quarterly basis, indicating the extent to which the Company was in compliance with mandatory statutory requirements. Due compliance with all requirements are monitored through this process. Further, Internal Audit Department of the Company performs the independent test checks on regulatory compliance requirements.
Whistleblowing Policy
The Company’s Whistleblowing Policy was put in place and all members of staff were educated and encouraged to resort to whistleblowing if they had reasonable grounds to believe that there were wrong doings or other improprieties. All appropriate procedures are in place to conduct independent investigations into incidents reported through this process or if identified through other means. Concerns raised are investigated and the identity of the person raising the concern is kept confidential. Even anonymous complaints are investigated. This process is monitored by the Board Audit Committee.
Board Audit Committee Evaluation
An independent evaluation of the effectiveness of the Committee was carried out by the members of the Board during the year. Considering the overall conduct of the Committee and its contribution on the overall performance of the Company, the Committee has been rated as highly effective.
Appreciation
During the financial year, Mr R Mohamed, Non-Executive Independent Director retired from the Committee as he ceased to be a member of the Director Board of the Company with effect from 16 August 2020, on reaching 70 years of age. Further, Prof A S Dharamasiri Non-Executive Independent Director retired from the Committee as he ceased to be a member of the Director Board of the Company with effect from 31 January 2021, on completing 9 years of service. The Committee wishes to thank Mr R Mohamed and Prof A S Dharamasiri for their valuable contribution over the years.
Conclusion
Based on the review of reports submitted by the External and Internal auditors, the information obtained by the Committee and after examination of the adequacy and effectiveness of the internal controls which have been designed to provide a reasonable assurance to Directors that the assets of the Company are safeguarded, the Board Audit Committee is satisfied that the financial position of the Company is regularly monitored and that steps are being taken to continuously improve the control environment in which the Company operates.
P R W Perera
Chairperson
Board Audit Committee
10 June 2021
Colombo