HC-3 HC-3 Audit Committee and Financial Statements Certification
HC-3.1 HC-3.1 Principle
HC-3.1.1
The Board must have rigorous controls for financial audit and reporting, internal control, and compliance with law.
October 2010HC-3.2 HC-3.2 Audit Committee
HC-3.2.1
The board must establish an audit committee of at least three directors of which the majority must be independent including the Chairman. The committee must:
(a) Review theconventional bank licensee's accounting and financial practices;(b) Review the integrity of theconventional bank licensee's financial and internal controls and financial statements (particularly with reference to information passed to the Board - see HC-1.2.10). The information needs of the Board to perform its monitoring responsibilities must be defined in writing, and regularly monitored by the Audit Committee;(c) Review theconventional bank licensee's compliance with legal requirements;(d) Recommend the appointment, compensation and oversight of theconventional bank licensee's external auditor; and(e) Recommend the appointment of the internal auditor.Amended: January 2012
Amended: January 2011
October 2010HC-3.2.2
In its review of the systems and controls framework in Paragraph HC-3.2.1, the audit committee must:
(a) Make effective use of the work of external and internal auditors. The audit committee must ensure the integrity of the bank's accounting and financial reporting systems through regular independent review (by internal and external audit). Audit findings must be used as an independent check on the information received from management about the bank's operations and performance and the effectiveness of internal controls; and(b) Make use of self-assessments, stress/scenario tests, and/or independent judgements made by external advisors. The Board should appoint supporting committees, and engage senior management to assist the audit committee in the oversight of risk management; and(c) Ensure that senior management have put in place appropriate systems of control for the business of the bank and the information needs of the Board; in particular, there must be appropriate systems and functions for identifying as well as for monitoring risk, the financial position of the bank, and compliance with applicable laws, regulations and best practice standards. The systems must produce information on a timely basis.October 2010HC-3.2.3
The
conventional bank licensee must set up an internal audit function, which reports directly to the Audit Committee and administratively to theCEO .October 2010HC-3.2.4
The
CEO must not be a member of the audit committee.October 2010HC-3.3 HC-3.3 Audit Committee Charter
HC-3.3.1
The audit committee must adopt a written charter which shall, at a minimum, state the duties outlined in Paragraph HC-3.2.1 and the other matters included in Appendix A to this Module.
October 2010HC-3.3.2
A majority of the audit committee must have the financial literacy qualifications stated in Appendix A.
October 2010HC-3.3.3
The board should adopt a "whistleblower" program under which employees can confidentially raise concerns about possible improprieties in financial or legal matters. Under the program, concerns may be communicated directly to any audit committee member or, alternatively, to an identified officer or employee who will report directly to the Audit Committee on this point.
October 2010HC-3.4 HC-3.4 CEO and CFO Certification of Financial Statements
HC-3.4.1
To encourage management accountability for the financial statements required by the directors, the
conventional bank licensee's CEO and chief financial officer must state in writing to the audit committee and the board as a whole that theconventional bank licensee's interim and annual financial statements present a true and fair view, in all material respects, of theconventional bank licensee's financial condition and results of operations in accordance with applicable accounting standards.October 2010
