Learning the Lessons: Alan Cameron on Audit Committees at the joint IGAP & CPA Australia Annual Forum.

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Camerron photoAlan Cameron AO used his address to the IGAP and CPA Australia Annual Forum in 2014 on ‘The evolving role of audit committees’ to draw lessons from the HIH and Centro cases for contemporary audit committees.

Cameron is current Chair of the ASX Corporate Governance Council and several large public companies, and also a former Deputy Chancellor of the University of Sydney.

He addressed the IGAP and CPA Australia Annual Forum in his personal capacity, drawing on his extensive experience to provide insights into what the Centro and HIH judgements reveal about good audit committee practice.

Cameron’s keynote address emphasised directors’ role in addressing governance issues early, rather than becoming ‘gatekeepers’ after the fact:

‘To me gatekeepers are auditors and regulators and other people who look at the results afterwards. I think directors are rather earlier in the line than gatekeepers’.

Looking back over the Centro and HIH cases, Cameron highlighted three key lessons for how boards and audit committees can best execute their functions.

  1. Keeping the board and audit committee separate

The HIH judgement underscored how audit committees need to meet separately from the board if the accounts are to be examined rigorously. In Cameron’s words:

‘If the whole board is involved in the work of the audit committee, the audit committee is not doing its job. Its job is to have a first detailed look and if the whole board is there all the time as a matter of routine that isn’t going to happen’.

‘To me a troubling aspect of the processes of the HIH audit committee was its practice of meeting before and effectively in the presence of the board. As a result of that practice it operated as little more than an extension of the board… I see that now all over the place’.

  1. Making time to review financial reports properly

Another impediment to rigorously examining the accounts is not allowing the audit committee and the board time to consider the financials properly. Among other issues, the HIH judgement criticised ‘the practice of the six monthly financial reports being considered by the audit committee, approved by the board and announced all on the same day’.

Not only do directors need time between meetings to adequately review the financial reports, they also need time to access the right people:

‘The audit committee should meet auditors in the absence of management before or in the course of each meeting or at least from time to time. The material should be distributed well in advance of a committee meeting’

  1. A clear audit committee charter

Cameron’s analysis of the HIH judgement also highlighted the absence of a clear role for the audit committee in that company. By contrast, a clear and detailed charter can help define and clarify the audit committee’s role:

‘The [HIH] charter is short and the terms of reference are couched in general language. They do not clearly define and establish the role and responsibilities of the committee and its relationship to the board. There is no evidence that the terms were reviewed annually to see that the committee in its role remained relevant to the needs of HIH. So I think the clear message from that is short might be dangerous. You do need to review it every year’.

Learning the Lessons

Although Cameron’s address focused on audit-committee practice, he also reminded participants of the whole board’s responsibilities under law:

‘Whilst an audit committee has an important role of monitoring oversight that is not to the exclusion of the role of a director to consider the financial accounts for him or herself’.

Cameron concluded by highlighting several practices that directors might adopt, including:

  • Insisting on reviewing paper copies of the reports;
  • Checking organisations’ systems for dealing with whistle-blowers; and
  • Paying attention to internal audit.

Ultimately though, Cameron stressed that there is no substitute for directors using their limited time to investigate the right issues:

‘We can set up all these structures, but if people don’t ask the right questions, and be appropriately sceptical, then you will still have these problems’

Audit, Aristotle and the Clean Energy Regulator

The Clean Energy regulator used its Annual Audit and Assurance Workshops held earlier this year to emphasise the importance of audit to the agency. This including having two members of the regulator – Annie T. Brown and Michael D’Ascenzo – as keynote speakers to ‘reinforce the point that the Clean Energy Regulator takes its audit functions very seriously’.

IGAP’s Prof. Nonna Martinov-Bennie, who also sits on the Australian Auditing and Assurance Standards Board (AUASB), was also a keynote speaker.

Prof. Nonna Martinov-Bennie presented on the key audit concept of ‘professional scepticism’. The presentation was based on in-depth interviews with senior audit practitioners, and covered a number of aspects of professional scepticism and their practical implications. Prof Martinov-Bennie also highlighted the apparently conflicting views of audit scepticism as a relatively fixed character trait, but also a ‘skill’ that can be trained over time.

The presentation introduced an ‘Aristotelian’ idea of professional scepticism – developed in collaboration with A/Prof Dyball and Dr Dale Tweedie – which shows how these seemingly contradictory elements of audit scepticism might be resolved. Far from being simply ‘academic’, Prof. Martinov-Bennie outlined important practical implications of understanding audit scepticism in this way.

Prof. Martinov-Bennie and A/Prof Dyball also presented their research findings at the ICAA academic leadership series. Slides of both presentations are available below:

Clean Energy Regulator Presentation >

< ICAA Academic Series >

For more information on this research and analysis, contact: nonna.martinov-bennie@mq.edu.au

Podcasts: Ethics and the Professional Accountant

dreamstime_m_16826054In 2013 CPA Australia’s In the Black magazine hosted a series of informative and entertaining podcasts on ethical behaviour and the professional identity of accountants, with Professor Sally Gunz.

Sally is Professor of Professional Ethics and Business Law at the University of Waterloo in Canada, and the Director of the Centre for Accounting Ethics. She visited Macquarie University’s International Governance and Performance (IGAP) Research Centre in mid-2013, and discussed ethics with Dr Eva Tsahuridu, Policy Adviser at CPA Australia.

The pod-casts cover three themes:

1. common ethical challenges.

2. ethical obligations; and

2. professional trust, obligation and crises of consciousness;

This series explores ethical challenges facing professional accountants across different industries, including in public practice, not-for-profits, business and the public sector.

For Professor Gunz, the common ethical obligation for all professional accountants to consider is serving the public interest:

“It always comes back to the ultimate responsibility to serve the public. You have to remember as a professional of any stripe that even though you may act as a manager many times, you’re different from a manager.”

“You have additional responsibilities. You ultimately have the responsibility to your profession, which translates to serving the public.”

“You are there because of that responsibility. And when push comes to shove, if you don’t remember that, the question is, ‘Why are you there?’”

A good question to consider heading into 2014.

The impact of the virtual university on accounting and business education

A new publication explores the rapidly expanding relationship between technology and education delivery and the impact for business and accounting education.

The Virtual University: Impact on Australian Accounting and Business Education, is co-edited by Assoc. Prof. Elaine Evans and Prof. James Guthrie from Macquarie University, with Prof. Roger Burritt from the University of South Australia.

?????????????????????????????????????????????????????????????????????Produced by the Institute of Chartered Accountants in Australia in conjunction with the University of South Australia’s Centre for Accounting, Governance and Sustainability (CAGS), the text explores the many opportunities and challenges for tertiary educators bought on by this evolving education environment.

The text investigates how technological advances and the rise of online education offerings, including massive open online courses (MOOCs), are changing the higher education landscape. In a series of papers by practitioners and academics, the potential impact of this transformation on business and accounting education is explored.

Currently over three million students globally are taking part in MOOCs. As Prof. Guthrie observes on his blog, the access that MOOCs provide have the potential to make future generations more educated than any previous generation, but they also bring many challenges, including high attrition rates and concerns over quality of learning outcomes.

The papers are designed to stimulate discussion around how traditional universities can adapt to the changing market and develop strategies that ultimately create the best possible outcomes for students and professions.

In their introduction to the publication, Guthrie, Burritt and Evans discuss the competitive threat that MOOCs pose to the traditional higher education model of university, with its bricks and mortar. This threat is currently restricted because MOOCs do not offer qualifications, course majors or an on-campus student experience. Nevertheless this could change rapidly, and business schools and accounting departments need to incorporate technology into teaching as part of a blended learning approach.

The issues facing business and accounting education include: the quality of learning outcomes in both a blended learning and MOOC environment; public scrutiny over student qualifications; and the lack of a campus experience for students who want to enter a profession which requires graduate capabilities such as communication skills.

Guthrie, Burritt and Evans conclude that, despite the number of challenges that face a virtual university, accounting and business educators and the accounting profession will have abundant opportunities to collaborate over issues such as credentialing of future business professionals; the quality of blended learning experiences for students; and the production of quality, interactive teaching and learning resources.