The Board presents the Audit Committee Report to provide insight on the discharge of the Audit Committee’s
functions for the Group in 2011.
COMPOSITION AND ATTENDANCE
The Audit Committee (AC) has five members, all of whom are NEDs and independent directors, including the AC Chairman and a Public Interest Director (PID), who also satisfies the test of independence under the Main Market Listing Requirements (MMLR). This meets the requirements of the Corporate Governance (CG) Code. The names of the AC members and their attendance record are given on page 95 of this Annual Report.
The AC Chairman, Tan Sri Datuk Dr. Abdul Samad bin Haji Alias, is a Fellow of the Institute of Chartered Accountants, Australia, a member of the Malaysian Institute of Accountants (MIA) and a member of the Malaysian Institute of Certified Public Accountants (MICPA). Accordingly, Bursa Malaysia complies with paragraph 15.09(1)(c)(i) of the MMLR. Tan Sri Datuk Dr. Abdul Samad bin Haji Alias was appointed AC Chairman on 7 July 2011, following the resignation of Dato’ Sri Abdul Wahid bin Omar as chairman on 31 May 2011.
The Board reviews annually the terms of office of the AC members. The Board also assesses the performance of the AC and its members through annual board committee effectiveness evaluation and is satisfied that they are able to discharge their functions, duties and responsibilities in accordance with the Terms of Reference (TOR) of the AC, thereby supporting the Board in ensuring appropriate CG standards within the Group.
TERMS OF REFERENCE
On 17 October 2011, the TOR of the AC was reviewed to reflect its oversight function in respect of the implementation of the Whistleblower Policy and Procedures (WPP) to ensure effective administration thereof by the Chief Internal Auditor (CIA) and/or designated officer(s) of the Group’s Internal Audit (IA). On 22 November 2011, the Board gave its approval to the AC to carry out its responsibilities as required under the WPP which was also approved by the Board on the same date. The TOR of the AC is available on Bursa Malaysia’s website.
MEETINGS
The AC held five meetings in FY2011, where the meetings were held without the presence of other directors and employees, except when their attendance was at the invitation of the AC. The CEO attended the 4th and 5th meetings of the AC in 2011 as requested by the AC to facilitate direct communication and to seek clarification on audit issues as well as to solicit information in relation to the operations of the Group. The CIA and Departmental Heads of the respective IA functions were present at all AC meetings to table the respective IA reports. Relevant management of the audit subjects were invited to brief the AC on specific issues arising from relevant audit reports.
The lead audit partner of the External Auditors responsible for the Group attended four AC meetings in 2011 to present the auditors’ report on the annual audited financial statements for FY2010 as well as the auditors’ review reports on the unaudited quarterly financial statements for FY2011. The AC also met with the External Auditors on two occasions in 2011 (on 26 January 2011 and 17 October 2011), without the presence of the CEO/Executive Director, management or Internal Auditors. At these meetings, the AC enquired about management’s cooperation with the External Auditors, sharing of information and proficiency in financial reporting functions, particularly in relation to applicable Financial Reporting Standards (FRS). The External Auditors were also invited to raise with the AC any matter they considered important to bring to the AC’s attention. The AC Chairman also sought information on the communication flow between the External Auditors and management which was necessary to allow unrestricted access to information for the former to effectively perform its duties.
Deliberations during the AC meetings, including the issues tabled and the rationale adopted for decisions, were recorded. Minutes of AC meetings were tabled for confirmation at the following AC meeting, and subsequently presented to the Board for notation. During FY2011, the AC Chairman presented the recommendations of his Committee to the Board for approval of the annual and quarterly financial statements as well as declaration of dividends. The AC Chairman also conveyed to the Board matters of significant concern as and when raised by the External Auditors or Internal Auditors.
At the meeting on 18 July 2011, the AC reviewed a situation involving a potential Conflict of Interest (COI) whereby a proposed award of tender to a corporation having a common director with Bursa, was not regarded as a related party transaction under the MMLR. Nonetheless, the director abstained from deliberation and decision-making at the AC meeting on this matter. The AC was satisfied that the award was in the best interest of Bursa Malaysia, whereby the terms concluded were fair, reasonable and based on commercial viability, and were therefore not deemed to be detrimental to the interests of minority shareholders. The AC also decided that the value of the tender was not significant enough to give rise to concerns of COI within the Group’s Guidelines for Handling COI.
At the same meeting, the AC reviewed the CIA's performance upon the completion of his six months' probation period and resolved to approve the confirmation of Dr. Badrul Hisham bin Mohd Yusoff as the CIA accordingly with effect from 1 July 2011.
SUMMARY OF ACTIVITIES
The AC’s activities during FY2011 encompassed the following:
Financial Reporting
In overseeing Bursa Malaysia’s financial reporting, the AC reviewed the quarterly financial statements for the fourth quarter of FY2010 and the annual audited financial statements for FY2010 at its meeting on 26 January 2011. The quarterly financial statements for the first, second and third quarters of FY2011 were reviewed at the AC meetings on 18 April 2011, 18 July 2011 and 17 October 2011 respectively. On 3 February 2012, the AC reviewed the quarterly financial statements for the fourth quarter of FY2011 and the annual audited financial statements for FY2011. The AC’s recommendations were presented to the respective Board meetings held subsequently for approval.
To safeguard the integrity of information, the Chief Financial Officer (CFO) had, on 13 October 2011 and 30 January 2012, given assurance to the AC that adequate processes and controls were in place for an effective and efficient financial statements close process in the preparation of the quarterly financial statements for the third and fourth quarters of FY2011 respectively, and that appropriate accounting policies had been adopted and applied consistently to give a true and fair view of the state of affairs of the Group.
External Audit
The AC deliberated the External Auditors’ report at its meeting on 26 January 2011 with regard to the relevant disclosures in the annual audited financial statements for FY2010. The AC also considered suggestions for improvement in the accounting procedures and internal control measures.
The AC reviewed the External Auditors’ Annual Plan 2011, including the non-recurring non-audit services that may be provided by the External Auditors and corresponding fees for FY2011 at its meeting on 26 January 2011. The AC was satisfied that the recurring non-audit services provided by the External Auditors, such as tax compliance and limited review of quarterly financial statements, did not impair its audit independence. In 2011, no non-recurring non-audit services were provided by the External Auditors.
The AC was also satisfied with the External Auditors’ technical competency, based on its annual evaluation of their performance and the reasonableness of their audit fees. With that, the AC further recommended for the Board’s approval the appointment of the External Auditors in respect of FY2011.
On 17 October 2011, the AC reviewed the External Auditors’ Audit Planning Memorandum outlining their scope of work and proposed fees for the statutory audit and review of the Internal Control Statement for FY2011. The proposed fees were recommended by the AC to the Board for approval on 19 October 2011.
On 3 February 2012, the performance of the external audit function was reviewed and assessed. Feedback on the conduct of the external audit was obtained from the management. Being satisfied with the performance of the External Auditors, the AC recommended their re-appointment for FY2012.
Internal Audit
The Group IA conducted the audit activities as planned in the 2011 Audit Plan which was approved by the AC on 23 November 2010. The CIA presented to the AC at every one of its meetings during the year the Group IA’s reports on the status and progress of IA assignments, including a summary of audit reports issued, audit recommendations provided by Internal Auditors and management’s response to those recommendations. Non-audit assignments were also presented, covering the evaluation of system readiness on system development projects, post-implementation review of projects, tender evaluation and the monitoring of employees’ dealings in securities.
At the meeting on 26 January 2011, the AC deliberated on the results of the Group IA’s 2010 Balanced Scorecard and KPIs. The Group IA’s 2011 Balanced Scorecard and KPIs were considered and approved on 18 April 2011.
At the meeting on 18 April 2011, the AC reviewed the results of the Group IA’s Customer Satisfaction Survey for 2010, which included an analysis of IA’s strengths and weaknesses and action plans to improve audit services to IA’s customers. The results indicated that IA’s customers were generally satisfied with the performance of the IA function.
On 18 April 2011, the CIA presented the post-mortem report for the Annual IA Plan of 2010 which provided an overall indication of the adequacy and effectiveness of controls implemented within the Group to mitigate its key risks.
On 17 October 2011, the AC reviewed the proposed WPP for the Group. For the proposed WPP to serve as an anti-fraud programme or internal control mechanism to mitigate the risk of fraud, the AC being an independent Board Committee was proposed to oversee the implementation of the WPP, consistent with the recommendations of the CG Guide issued by Bursa Malaysia and the best CG practices in other jurisdictions.
At the meeting on 21 November 2011, the AC considered the adequacy of scope and comprehensive coverage of the Group’s activities, and approved the IA’s Annual Audit Plan for 2012.
On 21 November 2011, the AC reviewed the annual Internal Control Statement and the Risk Management Statement for publication in the 2011 Annual Report.
The Share Grant Plan (SGP) of Bursa Malaysia was implemented in July 2011, with the award of shares under the Restricted Share Plan (RSP). At the meeting on 21 November 2011, the AC reviewed the verification exercise conducted by Group IA on the award and vesting of shares in Bursa Malaysia to eligible employees of the Group pursuant to the SGP, based on their performance for FY2010, to ensure compliance with the criteria as approved by the Nomination and Remuneration Committee.
INTERNAL AUDIT FUNCTION
The Group IA reports directly to the AC, which determines the adequacy of the scope, functions and resources of the IA function. The Group IA comprises 13 auditors: the CIA and four Departmental Heads with two Internal Auditors under each department, to ensure the responsibilities of the Group IA are fully discharged.
The purpose of the IA function is to provide the Board, through the AC, with reasonable assurance of the effectiveness of the system of internal control in the Group. Beginning October 2011, the Group IA included, as part of its audit plan, the review of processes of the relevant business units/functional groups which would have a bearing on the financial information of Bursa Malaysia and for the purpose of ensuring reliability and integrity of such information. Representation was made by the CIA to the AC on 17 October 2011 and 3 February 2012 that the controls of processes reviewed which supported the preparation of financial statements were operating effectively.
On 25 May 2011, the CEO established the Management Risk and Audit Committee (MRAC) under the Group’s Management Governance Framework to review reports from the Internal Auditors, External Auditors or Securities Commission, for the purpose of assessing the adequacy and integrity of the system of internal control of the Group. The MRAC had three meetings in 2011, during which the Internal Auditors highlighted to the MRAC the audit findings which required follow-up action by the management, as well as any outstanding audit issues which required corrective action to be taken to ensure an adequate and effective internal control system within the Group.
The work of the IA function is carried out through a programme of regular reviews and assessments based on the Annual IA Plan. For 2011, a riskbased approach was adopted. The selection of audit assignments took into consideration the risk profiles of each division which were also mapped to the Corporate Risk Profile approved by the Board.
The main activities of the IA function include:
Performing operational audits on the following areas:
Core Business and Support Services functions of the Group;
Quarterly stock count of CDS scrip maintained by Bursa Malaysia Depository;
System administration and support; and
Reviewing compliance with the Group’s Guidelines for Handling COI, where conflict may exist between the interest of the Group, and the proper performance of its regulatory duties.
Performing IS and IT audits on the following areas:
Facilities management functions supporting the core application systems of the Group;
IT project management for the Group;
Systems development and maintenance of core application systems of the Group; and
IT-related functions supported by third-party vendors.
Providing assurance and performing compliance reviews for:
Tenders and significant procurement exercises;
System Readiness Review on key system development projects and post-implementation of the projects;
Monitoring employees’ compliance with the Securities Transaction Policy; and
Undertaking investigations into any suspicion of fraud or reported operational failures within the Group.
The results of the audits provided in the IA reports were reviewed by the AC. The relevant management of the specific audit subject was made responsible for ensuring that corrective actions on reported weaknesses were taken within the required time frame. The Group IA conducted followup audits to ensure that management’s corrective action was implemented appropriately. In this respect, the IA has added value by improving the control processes within the Group.
All IA activities for FY2011 were conducted by the in-house audit team. No areas of the IA function were outsourced. The total costs incurred by Group IA in respect to discharging their functions and responsibilities in 2011 amounted to RM2,553,045 compared to RM2,064,245 in 2010.
