Western Independent Banker - November/December 2008 - (Page 25)

By Len Filppu Best Practices Checklists for the Audit Committee THE AUDIT COMMIT TEE is the intersecting point of a bank’s internal audit, ex ter na l aud it , boa rd of d i rec tors , management, and shareholders. While always a critical crossroads of corporate governance, accountability and checks a nd ba la nce s , Sa rba ne s- O x le y a nd heightened regulatory expectations have made the job of today’s audit committee tougher and trickier. To help navigate safely and soundly through this more stringent regulatory environment, here are some compliance checklists based on industry standards that can guide bank directors to understand, analyze and implement appropriate audit committee policies and procedures. Remember, corporate governance is an ongoing journey, not a destination. There is always room for improvement, but it is most important that banks strive to meet the spirit of Sarbanes-Oxley and corporate governance guidelines. Perfection may never be attained, but progress is achievable using step-by-step checklist. Bank Director Responsibilities Bank directors must understand their new responsibilities and adopt policies and procedures to assure immediate and continuing compliance. • Be honest • Be accountable for the bank’s safe, sound and efficient operation • Monitor operations to ensure they are in compliance with laws and policies • Exercise independent judgment in evaluating management’s actions and competence • Consider the impact of actions on the bank, customers, employees and the community • Attend meetings, participate, attend training and stay informed Audit Committee Purpose The general purpose of the audit committee includes communicating to the bank’s board of directors its oversight duties relating to: • Quality and integrity of financial statements and financial reporting • Quality and integrity of internal control considerations • Independent auditor qualifications, independence, engagement and performance • Internal auditor qualifications and performance • Compliance with legal and regulatory requirements • Preparation of audit committee report(s) • Other duties specifically assigned by the board of directors Audit Committee Members While individual bank charters may specify various requirements, these membership characteristics generally apply throughout the industry: • The charter should specify minimum number of members, their terms and qualifications (most audit committees include at least three members) • Audit committee members must be outside directors • Members should not be employees of the bank • Members should have no “material relationship” with the bank, either as a partner or shareholder or as an officer of any organization that has a material relationship • Members should be knowledgeable of the bank’s affairs and the nature of auditing • At least one member must be “financially literate”—in general, a financial expert has education and experience as a public accountant, auditor, financial officer, comptroller, accounting officer, and/or understands accounting principles and financial statement preparation and auditing Audit Committee Duties While audit committee duties can vary from bank to bank, these are the key duties as described in the source material from the Bank Administration Institute’s Certified Bank Auditor Examination Review, vol. 3: • Review of external and internal auditor reports • Annual audit report on financial statements • Annual attest report on internal control procedures • Reports on reportable conditions, material weaknesses and regulatory investigations • Assure the rotation of the external auditor’s lead partner and the partner Remember, corporate governance is an ongoing journey, not a destination. There is always room for improvement, but it is most important that banks strive to meet the spirit of Sarbanes-Oxley and corporate governance guidelines. Western Independent Banker November/December 2008 25

Table of Contents Feed for the Digital Edition of Western Independent Banker - November/December 2008

Western Independent Banker - November/December 2008 Contents A Message from the President & CEO A Practical Approach to Director Evaluations Director Assessment: New Standards for a High Performing Director The Best of the West: Traits of High Performing Banks Best Practices Checklist for the Audit Committee The Real Performance Metric: It Takes a Balance of Profitability and Growth to Be Successful The Role of the Board in a Credit Crisis A Bank Director's Obligation to Be Aware of Regulatory Change Benefits Tied to Performance Receive Higher Approval Rating by�Board Members Increasing Shareholder Value: Key Profitability Drivers Board Portals Streamline Efficiency for 21st Century WIB Service Corporation Report WIB Calendar Welcome New Members Index to Advertisers advertiser.com

Western Independent Banker - November/December 2008

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