The revised UK Corporate Governance Code which became effective 1st June 2010, “has some potential minefields,” according to David Berry, who is Managing Director of consulting firm Columbus Circle Governance.

Berry was answering questions at a briefing on the 6th Asia Pacific Audit & Governance Summit which is to be held in Kuala Lumpur later this month. The Summit brings together audit and governance professionals from some 15 countries. This year it is sponsored by audit software providers CCH TeamMate and the Corporate Governance Chronicle. The newly released UK Code is bound to get close scrutiny at the Summit because it will certainly influence the thinking of regulators in the Asian region.

“At first impression,” said Berry, “There are some interesting and subtle changes, and there are some things which are quite awful in our context.”

“The idea that directors of larger listed companies should be up for re-election annually is a mine field. It opens the door for dominant shareholders to get rid of the independent fellow who dares to express his opinion, or inclines him to obedience. Not good news”

“There’s a new theme of regularly refreshing the Board, which is great. But the Code goes on to suggest there should be a rigorous review of the continuing presence of non-executives if they have served more than six years on the Board. We do not have an adequate pool of director talent as it is. How would we meet such a challenge?”

The Code was produced by the UK’s Financial Reporting Council and replaces the 2006 Combined Code. It will apply to UK companies with accounting periods that commence after 29 June 2010.

“The recent crisis highlighted the problems in audit methods that have been used in the past. The most significant issues that companies face are related to the strategies which their boards follow. So this should be an important focus for internal auditors. Unfortunately past methods such as risk based audit, do not give enough focus on strategy and instead concentrate on the processes that support strategy.”

According to Pasricha, internal processes must still continue to be audited, but with the introduction of SBA, auditors now have an effective method of becoming involved at the higher strategic level, which is where most significant risks lie.

He went on to explain that although the problems of previous methods have long been accepted, the crisis acted as a catalyst for auditors, “to lift their game.”

“The new SBA is generally welcomed by audit committees” he said, they have been asking for auditors to get involved much earlier in significant changes and the implementation of strategies in an organisation.”

“SBA is the first real advance in internal audit methods for the last twenty years and I am very excited at being an ambassador for the new SBA,” he said. Pasricha is at the beginning of a workshop tour explaining SBA to auditors, starting with Australia. The workshops and briefings are to be held in Gold Coast, Kuala Lumpur, Singapore and Jakarta and in the second half of the year in Mumbai, Shanghai, Auckland and Bangkok.

The survey was conducted as part of the 5th Asia Pacific Audit & Governance Summit held in Kuala Lumpur in June this year. Commenting on the results, Navin Pasricha, Chairman of Columbus Circle Governance said that, "The credibility of governance statements clearly needs to be improved. One way to do this would be to have a mandatory independent review of the governance statement that is contained in annual reports." Some 88% of respondents to the survey believed that such a compulsory review should be introduced.

Click to read the full survey and summit report

This was the main message from Navin Pasricha, Chairman of Columbus Circle Governance, at a briefing session for a specially arranged workshop on the risk, control and audit of outsourced services.

“A number of Malaysian companies have the attitude that if they are outsourcing a core business process such as IT or a call centre, then they are somehow immune to the risks involved. The reality is that outsourcing is only a commercial arrangement. Not only do the risks remain yours, in fact there are a lot more risks added on.”

Chief among the additional risks according to Pasricha, are corporate governance risk, as with Satyam, and “the risk that if your outsourcing provider goes under or cannot deliver for whatever reason, then you must have a backup strategy.”

“Risk assessments at present, tend to concentrate on operational issues and service level agreements when things are progressing well. This includes the ability of the outsourcer to deliver during normal times and their disaster recovery plans and so forth. These are all important, however, it is clear from the Satyam case that companies must also consider the bigger strategic risks of outsourcing and the issues of dependency upon a service provider.”

Pasricha said that outsourcing arrangements should be subjected to the same kind of scrutiny and due diligence of corporate governance standards as a joint venture or formal alliance. “

The specially arranged workshop on the “Risk, Control & Audit of Outsourced Services,” is being organised by Columbus Circle on 19 February 2009.

Media contacts Columbus Circle Governance Sdn Bhd, is a professional firm offering services and advice in the areas of corporate governance, risk management and internal audit, investor relations, financial communications and issues management. For further details, please contact: Maureen Keasbery: Tel: +603 2718 9688; Fax: +603 2718 9788; Email: maureen@cct-global.com

The audits of corporate governance which internal auditors are required to perform under the revised Corporate Governance Code are proving, “Very Tough”, according to David Berry, Managing Director of consulting firm Columbus Circle Governance. Berry was giving a briefing in Penang about the forthcoming Asia Pacific Audit and Governance Summit which is being held in Kuala Lumpur from 17-18 June.

According to Berry, the requirement for internal auditors to review the corporate governance processes and structures in their companies is an excellent move. “A review will bring significant improvements over time, but the internal auditor may not be the right person to do the review. Effectively, they are being asked to review their boss! That is very tough to do.”

“As we all know, Audit Committees are an important pillar in the corporate governance structure, so an internal auditor would have to review the performance of the Audit Committee. But the Internal Auditor reports to the Audit Committee and its Chairman, so it could mean criticising your boss. Some might feel that’s a good way to shorten your career!”

“The internal auditor or the audit committee should really get some external assistance. Any external reviewer, however, must be independent of the company.”

Answering questions, Berry said that the company’s statutory auditors should never be asked to do the corporate governance review. “They are part of the governance machinery, so there’s an inherent conflict of interest.”

The topic is likely to get a great deal of scrutiny at the Asia Pacific Audit and Governance Summit, where the Auditor General is the keynote speaker and panellists include the CEO of Bursa Malaysia, the President of the Minority Shareholder Watchdog Group and Audit Committee Chairmen and Chief Auditors from leading companies around the region.

Last year, there were participants from some 15 countries at the annual Summit. This year 250 top level delegates are expected to attend the Summit which is being supported by Bursa Malaysia, the Minority Shareholders Watchdog Group, the Singapore Securities Investors Association, Auditnet and ISACA amongst other organisations.

Appeared in "THEEDGEDAILY" on 13/May/2008

Actions such as hefy fines on Transmile Group Bhd directors have jolted many audit committee members and auditors into paying greater attention to corporate governance issues, said consulting firm Columbus Circle Governanance chairman Navin Pasricha.

“There is a big breakthrough in the actions of regulators when policing corporate governance. In the past, limited policing and action were barriers to getting real corporate governance improvement,” he said in a statement released here yesterday in conjunction with the forthcoming 4th Asia Pacific Audit & Governance Summit (APAGS).

Pasricha said this year’s summit, which will be held on June 17 and 18, would focus on making sure that the momentum in improving corporate governance was kept up.

“Regulators such as the Securities Commission have plugged the gaps in corporate governance codes and there has been stern action against individual directors involved in governance scandals.

“Now, it is up to governance and audit practitioners to make sure that the new energy in the area is focused in the right direction.

“It is one thing for the Corporate Governance Code to have been revised, it is quite another to actually get it implemented effectively,” Parischa said.

Industry heavyweights — such as the Auditor General of Malaysia, the CEO of Bursa Malaysia Bhd, the CEO of the Indian Institute of Directors, the chief auditors of Telekom Malaysia Bhd and Astra Indonesia, the director of strategy from the Thailand Government Pension Fund and the president of the Philippines Institute of Internal Auditors — are all on the speakers panel.

Last year, there were participants from some 15 countries. This year, 250 top level delegates are expected to attend the summit which is being supported by Bursa Malaysia, the Minority Shareholders Watchdog Group and ISACA, among others.

Navin Pasricha, Chairman of Columbus Circle Governance said today that, “while informal assessments may take place; a formalised assessment that looks at hard issues and actually assesses performance against the terms of reference of an audit committee are extremely rare. Although the rules and scope of an audit committee are generally very extensive, we don’t know if they actually do the job.”

Pasricha was speaking at the Asia Pacific Audit & Governance Summit in Kuala Lumpur on 3rd July. He went on to say, “given that the purpose of audit committees is to review, they should welcome performance reviews of themselves. An independent review by specialists in the area will act as an effective catalyst to improve the performance of audit committees and perhaps reduce the instances of the type of accounting inconsistencies in companies that are hitting the headlines at this time.”

Other suggestions that Pasricha made for improving corporate governance effectiveness during his Chairman’s address at the Summit, included the need for an independent review of the corporate governance statements that companies make in their annual reports. He said that, “These statements are seldom subjected to the same rigorous auditing that the numerical part of annual reports receive. Yet it is well recognised that the quality of corporate governance is something that investors very much want to know about. In fact survey after survey has told us that investors will pay a premium in the share price if they know a company has good corporate governance standards. However, because the governance statement is not subject to audit; the credibility of the information in governance statements is sometimes in doubt.”

This was the third Asia Pacific Audit & Governance Summit. It is an annual regional forum run by Columbus Circle Governance, for audit leaders to explore solutions to the ever increasing challenges in the field. In the past, separate forums have been organised for internal auditors and audit committee members. However, as both bodies have the same objectives and as a positive move to strengthen the partnership between the two, this year’s forum combined the summits for auditors and audit committee members. This was to help address the gathering concerns over the quality of audits because of recent corporate accounting problems that have been in the media.

A survey of Chief Auditors conducted by Columbus Circle Governance Sdn Bhd, has provided surprising insights. According to the survey, 87% of Chief Audit Executives (CAEs) feel that technical skills are a significant training need for their audit team and 31% of them claim that their Chief Executive Officers interfere with their scope of work. Both issues bring into question the effectiveness of internal audits being conducted in the region.

Columbus Circle Governance surveyed 156 Chief Auditors from the Asia Pacific Region, about some of the more contentious issues within the auditing profession. The results have been published by Columbus Circle in Chief Auditor Insights. The survey reveals CAE perceptions about the quality of their human resources, the training that their audit teams need, work standards, their scope of work and their reporting relationships.

There is a concensus of opinion that the soft skills of audit staff need to be improved. This comes as no surprise as the general business community in Malaysia feel the same about soft skills. However, what is both surprising and worrying is that a large percentage of respondents feel their staff have a significant technical training need.

Another significant finding of the survey relates to reporting lines. Most internal auditors have dual reporting lines: a hard line to the Audit Committee and a dotted line to the Chief Executive Officer. This is a reporting model that CAEs regard as unsatisfactory, as their objectivity is in question when reporting to the Audit Committee on the CEO’s areas of responsibility.

Navin Pasricha, Chairman of Columbus Circle explains, “ The survey indicates a need for fundamental rethinking in some areas of the internal audit profession. Internal audit is considered a cornerstone of effective corporate governance. So if CAEs tell us that their objectivity is being compromised, we had better listen, if we want to enhance the standards of corporate governance.”

The survey was conducted in July this year during the 2nd Asia Pacific Chief Auditor Summit that was held in Kuala Lumpur. Chief Auditors from 18 countries met at the Summit to focus on the challenges for internal audit, corporate governance and tackling corruption. The next Asia Pacific Chief Auditor Summit will be held in Kuala Lumpur on 13 – 14 June 2007.

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