By Ifham Nizam

"The code of best practice on audit committees is the most useful document anyone involved in running a company should be familiar with," said Securities and Exchange Commission of Sri Lanka (SEC) Chairman M. L. Mack, who was the chief guest at the launch of the code of best practice on audit committees which took place at the Institute of Chartered Accountants of Sri Lanka (ICASL) on Tuesday.

Mack said that SEC is the regulator of the stock market and has a vital interest in protecting the reputation the market so as to give investors the confidence necessary to support it.

The SEC chief added: "While many problems outside our control have led to a major decline in investment in the last few years. It is fortunate that we have a pretty good record with regard to failures due to the sort of irregularities which the word Enron now represents."

Mack stressed. "Wars bad business decisions and opaque regulations have played their parts in the calamitous slide in our market. So far, we have despite a few simmering rows, avoided the Enron sort of problem which could destroy widespread market confidence."

Mack said having this without the benefit of a new code," I have no doubt that now we have it we shall be in an impregnable position."

ICASL president Asite Talwatte, said ICASL has continuously taken a lead role in promoting the practice of sound corporate governance in Sri Lanka. Talwatte added that in December 1997 ICASL issued a code of best practice on matters relating to financial aspects of corporate governance which was well received by the quoted companies, regulatory bodies, investors and the general public.

ICASL past president and partner KPMG Ford Rhodes Thornton and company, Reyaz Mihular said, "In taking into account the changes taking place in other parts of the world the ICASL has issued a code of best practice on audit committees."

He added: "This code covers; the role, objects and composition of an audit committee. Detailed objectives covering key areas such as the financial system, business risk management, internal controls, compliance with laws and company policies and external audit functions, methodology to achieve objectives and evaluating effectiveness of audit committee."

Mihular also said that some of the important recommendations coming through this code which will no doubt be of significant interest in the post Enron situation are: A requirement for the audit committee to ensure that there are adequate systems for reporting conflicts of interest situations with the management and assess whether they are fair and reasonable and reported in accordance with the prevailing regulations and standards.

To require the audit committee to review performance based remuneration schemes if any, and assess the adequacy of the safeguards that are in place to ensure that the reporting of the results of operations are not compromised by the existence of such schemes.

The audit committee is also encouraged to arrange for the disclosure of the board Principles of the scheme and their impact — in aggregate — on the reported results of the company with a view to enhancing transparency.

To review and evaluate factors related to the independence of the external auditors in accordance with the regulations and recommendations of the ICASL.

The audit committee to be advised of significant use of the external auditors in performing non-audit services, considering both the type of services rendered and the fees, such that their position as auditors is not deemed to be compromised.

The committee should arrange for the disclosure of such non-audit fees paid to the auditors of the company in its published financial statements to enhance transparency of the process.

An ICASL document said that ICASL expects listed companies in particular to adopt voluntarily the code of best practices an audit committees to ensure a strong system of corporate governance within their respective organizations.

The document added: "In this way, properly structured, informed and diligent audit committees can enhance confidence in the integrity of companies’ business processes and procedures and make a significant contribution to good corporate governance in Sri Lanka."

Member SEC retired precedent partner KPMG Ford Rhodes Thornton and company and past president ICASL G. C. B. Wijesinghe spoke on "Observations on Corporate Governance and Marketing, Technology and K — Practice." C & K Networks, India, vice president B. Ramakrishan made a presentation on e-learning knowledge portal.