IN keeping with its advocacy of investors, clients and staff undertaking non-financial audits of their own, CPA Australia has issued a corporate governance health checklist to help company stakeholders achieve this aim.
One of the first questions that the accounting body believes should be asked relates to the balance and size of the board.
“Are there an appropriate number of directors to allow for effective decision-making?” is one of the questions posed, with research indicating six to 10 directors is optimal.
Does the company have an independent chairman? Are all non-executive directors independent; having no business or other relationships that could compromise their objectivity?
Also, are directors required to hold a minimum number of shares in the company?
CPA Australia also believes questions should be asked about the workload and remuneration of board members.
“Do directors have sufficient time to commit to their board appointments?” the checklist asks.
The Australian Shareholders Association ‘considers a chairmanship of a listed company to be the equivalent of three directorships and that the maximum acceptable number of directorships or equivalent positions for an individual should not exceed five’.
External auditors also should be scrutinised. The checklist includes the question: How long has the company retained the services of its current external auditor? If it has been a long engagement, for example more than seven years, has the company undertaken a comprehensive review of this relationship and made this available to shareholders?
If the company retains the audit firm to provide non-audit services, are these disclosed in the annual report?
Besides viewing the operating procedures of external audits, the composition of internal audit committees should be tested.
“Has the company published its corporate governance policies and in particular has it disclosed:
p the board’s approach to identifying areas of significant business risk and putting arrangements in place to manage those risks;
p the main procedures that the company has in place for devising criteria for board membership, reviewing the membership of the board and nominating directors; and
p the main procedures that the company has in place for the nomination of external auditors and reviewing the adequacy of existing external audit arrangements with particular emphasis on the scope and quality of the audit.
