Hany Abou-El-Fotouh, Head of Compliance of Oman International Bank (OIB) called for publicly listed companies to apply audit committee self-assessment. He was addressing the subje
April 26, 2007 (Press Release) --
Abou-El-Fotouh explained that audit committee self-assessment is a mandatory ‎requirement for listed companies by some stock exchanges such as New York Stock ‎Exchange. It is optional requirement for unlisted or privately owned companies. ‎However, corporate governance writers recommend it as best practice
In providing an insight into the benefits of audit committee self-assessment, Abou-El-‎Fotouh explained that it improves effectiveness of audit committee and assists in ‎identifying and implementing better procedures. Additionally, the assessment allows ‎companies and shareholders to benefit from the collective, insight and expertise of ‎audit committee members
Abou-El-Fotouh pointed out that the assessment process is without its risks. To the ‎extent that the self-assessment focuses on individual performance, it can generate ill ‎will and actually undermine the group’s ability to work together. Besides, the ‎assessment exercise takes time particularly to follow up implementation of ‎recommended changes. The biggest risk, however, is litigation risk. It can create ‎evidence against the company that the audit committee has not done optimal job. ‎
He further explained: these risks can be mitigated by structuring the process ‎properly. The assessment should be limited to matters essential to the committee’s ‎role and designed to obtain helpful suggestions for improvement not mere criticism. ‎The questions should not be about individuals or specific instances of internal control ‎failure. Instead, they should focus on the working method and solicit qualitative ‎judgment. In order to mitigate litigation risk, he recommends involving a ‎knowledgeable lawyer working closely with all committee members to help the ‎committee evaluate the answers and recommendations
Abou-El-Fotouh went on to describe the possible steps of the self-assessment ‎process. He explained `the assessment approach has three steps: The first step is ‎for the audit committee chairman to decide who will coordinate the process and ‎create the assessment questionnaire; who will provide input other than audit ‎committee members e.g. chairman of the board, CEO, CFO, external auditors, others ‎interacting with the committee; and who will compile the results. The next step each ‎participant completes the questionnaire independently and returns it to the ‎coordinator. Then the audit committee chairman leads open discussion focusing on ‎areas for improvement and areas showing great variations in answers. The final step ‎is to compile a report to the board of directors on the effectiveness of the audit ‎committee, recommendations for improvement and action plans or changes in its ‎terms of reference
In concluding Abou-El-Fotouh said Oman is considered among top countries who ‎applied corporate governance occupying the top rank at the Arab countries level. ‎Speaking on corporate governance at Oman International Bank, he noted ‘OIB ‎applies the highest corporate governance standards in line with international best ‎practice and the directives of the local regulators. ‎
In providing an insight into the benefits of audit committee self-assessment, Abou-El-‎Fotouh explained that it improves effectiveness of audit committee and assists in ‎identifying and implementing better procedures. Additionally, the assessment allows ‎companies and shareholders to benefit from the collective, insight and expertise of ‎audit committee members
Abou-El-Fotouh pointed out that the assessment process is without its risks. To the ‎extent that the self-assessment focuses on individual performance, it can generate ill ‎will and actually undermine the group’s ability to work together. Besides, the ‎assessment exercise takes time particularly to follow up implementation of ‎recommended changes. The biggest risk, however, is litigation risk. It can create ‎evidence against the company that the audit committee has not done optimal job. ‎
He further explained: these risks can be mitigated by structuring the process ‎properly. The assessment should be limited to matters essential to the committee’s ‎role and designed to obtain helpful suggestions for improvement not mere criticism. ‎The questions should not be about individuals or specific instances of internal control ‎failure. Instead, they should focus on the working method and solicit qualitative ‎judgment. In order to mitigate litigation risk, he recommends involving a ‎knowledgeable lawyer working closely with all committee members to help the ‎committee evaluate the answers and recommendations
Abou-El-Fotouh went on to describe the possible steps of the self-assessment ‎process. He explained `the assessment approach has three steps: The first step is ‎for the audit committee chairman to decide who will coordinate the process and ‎create the assessment questionnaire; who will provide input other than audit ‎committee members e.g. chairman of the board, CEO, CFO, external auditors, others ‎interacting with the committee; and who will compile the results. The next step each ‎participant completes the questionnaire independently and returns it to the ‎coordinator. Then the audit committee chairman leads open discussion focusing on ‎areas for improvement and areas showing great variations in answers. The final step ‎is to compile a report to the board of directors on the effectiveness of the audit ‎committee, recommendations for improvement and action plans or changes in its ‎terms of reference
In concluding Abou-El-Fotouh said Oman is considered among top countries who ‎applied corporate governance occupying the top rank at the Arab countries level. ‎Speaking on corporate governance at Oman International Bank, he noted ‘OIB ‎applies the highest corporate governance standards in line with international best ‎practice and the directives of the local regulators. ‎
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