MANDATE – AUDIT COMMITTEE

MANDATE – AUDIT COMMITTEE

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MANDATE – AUDIT COMMITTEE Mission The Treasury Board Secretariat (TBS) Policy on Internal Audit, effective July 1, 2009, Directive on Departmental Audit Committees, provides direction on the role and responsibilities of Audit Committees. The Policies on Internal Control, effective April 2009, and Financial Management Governance, effective April 2009, provide further direction on the responsibility of the Committee. This Audit Committee Mandate incorporates such guidance. (Policy on Internal Audit; Directive on Departmental Audit Committees; Policy on Internal Control ;Policy on Financial Management Governance) The Policy on Internal Audit - Directive on Departmental Audit Committees states that: “The departmental Audit Committee is an essential part of governance and of the audit regime established by the Policy on Internal Audit. The policy makes the deputy head (Superintendent) of each department (OSFI) responsible for establishing an independent departmental audit committee that includes experienced, competent external members.” The Policy on Internal Control states that the deputy head (Superintendent) is responsible for: “Engaging with the Departmental Audit Committee, as applicable, on risk-based assessment plans and associated results related to the effectiveness of the departmental system of internal control over financial reporting.” The Policy on Financial Management Governance states that: “The Committee acts as an ...

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MANDATE – AUDIT COMMITTEE
Mission
The Treasury Board Secretariat (TBS)
Policy on Internal Audit, effective July 1, 2009
, Directive
on Departmental Audit Committees, provides direction on the role and responsibilities of Audit
Committees. The Policies on
Internal Control, effective April 2009,
and F
inancial Management
Governance, effective April 2009,
provide further direction on the responsibility of the Committee.
This Audit Committee Mandate incorporates such guidance. (
Policy on Internal Audit; Directive on
Departmental Audit Committees; Policy on Internal Control
;
Policy on Financial Management Governance)
The Policy on Internal Audit - Directive on Departmental Audit Committees states that:
“The departmental Audit Committee is an essential part of governance and of the
audit regime established by the Policy on Internal Audit. The policy makes the
deputy head (Superintendent) of each department (OSFI) responsible for establishing
an independent departmental audit committee that includes experienced, competent
external members.”
The Policy on Internal Control states that the deputy head (Superintendent) is responsible
for:
“Engaging with the Departmental Audit Committee, as applicable, on risk-based
assessment plans and associated results related to the effectiveness of the
departmental system of internal control over financial reporting.”
The Policy on Financial Management Governance states that:
“The Committee acts as an independent and objective advisor to the deputy head
(Superintendent) and provides guidance to the deputy head on the adequacy of the
department’s (OSFI) systems of internal control, financial reporting and financial
disclosures.”
Role and Scope of Work of the Audit Committee
The Audit Committee is advisory to the Superintendent. The mandate of the Audit Committee
(Committee) is to provide objective advice and recommendations to the Superintendent regarding
the sufficiency, quality, and results of assurance on the adequacy and functioning of OSFI’s risk
management, control and governance frameworks and processes, including accountability and
auditing systems. In order to give this support to the Superintendent, the Committee will exercise
oversight of core areas of OSFI’s management, control, and accountability, including reporting, in
an integrated, risk-focused, and systematic way.
The Audit Committee, as a strategic resource to the Superintendent, also provides such advice and
recommendations as may be requested by the Superintendent on specific emerging priorities,
concerns, risks, opportunities, and/or accountability reporting.
Office of the Superintendent of Financial Institutions Canada
IA
Internal Audit
IA
April 2011
Page 2 of 7
Responsibilities and Specific Duties of the Committee
Priorities for the Committee will be set by the Superintendent in consultation with the Committee.
Internal audit function
In connection with OSFI’s internal auditing function (Internal Audit), the Committee shall
exercise an oversight role with respect to IA. Oversight activities include:
Ensuring the independence of the internal audit function;
Annually reviewing and recommending for approval the Internal Audit Mandate;
Providing advice to the Superintendent on the recruitment, appointment, and performance
of the Managing Director, IA (the Chief Audit Executive, “CAE”);
Meeting with the CAE, as the Committee may consider appropriate, to discuss any
concerns or issues;
Reviewing the IA annual risk assessment, and internal audit plan and budgets with the
CAE and senior management to ensure IA has adequate resources to effectively carry out
its mandate pursuant to the IA mandate;
Review the annual IA budget;
Reviewing and recommending for approval, the annual IA
risk assessment, and multi-year
risk-based internal audit plan. Being made aware of audit engagements or tasks that do not
result in a report, and being informed of all matters of significance arising from such work;
Regularly reviewing, including regular status reports, the performance of IA by making
inquiries to satisfy itself that IA audit objectives and goals, staffing plans, financial
budgets, and audit timetables provide for adequate support of the Committee’s own goals
and objectives;
Reviewing the annual performance report of IA;
Reviewing and recommending for approval, internal audit reports, and corresponding
management action plans to address recommendations;
Following-up on management action plans regarding internal audit recommendations:
Advice on the effectiveness of arrangements in place to monitor and follow-up on
management action plans responding to recommendations from IA internal audits, the
Office of the Auditor General (OAG), other auditors, or central agencies.;
Periodically receiving reports from management on actions taken to address IA
recommendations; and
The CAE periodically reporting to the Committee on whether management's action
plans have been implemented and, based on risk-targeted follow up work, whether
there is reason to question the effectiveness of the actions taken. The report should
identify areas where IA believes management has accepted a level of risk that is
unacceptable to OSFI or to Federal government.
Assessing the implications of audit related issues, and IA priorities and initiatives raised by
the Treasury Board and other government organizations; and
Receiving and recommending for approval an annual assurance overview report prepared
by the CAE.
Office of the Superintendent of Financial Institutions Canada
IA
Internal Audit
IA
Office of the Auditor General (OAG) and Central Agencies
The Audit Committee responsibilities include:
Providing advice to the Superintendent on the adequacy of arrangements to support the audit work of the
OAG, other agents of Parliament, and central agencies;
Being briefed on all audit work (performance or annual financial statements audit) relating to OSFI
undertaken by OAG;
Being briefed on all audit work undertaken by other agents of Parliament or central agencies;
Reviewing and recommending acceptance of the annual financial statement audit plan, as well as the
annual external audit report;
Reviewing with the external auditor any difficulties or disputes with management encountered in the
course of the audit;
Reviewing Management Letters arising from the financial statement audit and the auditor’s findings and
recommendations relating to the internal controls in place for financial statement reporting;
Reviewing draft audit reports of the OAG, other agents of Parliament and central agencies, as may be
referred by the Superintendent and, as may be requested by the Superintendent,
recommend for
approval corresponding management responses and action plans;
Periodically reviewing reports from management on actions taken on performance or annual financial
audit;
Periodically meeting with representatives from the OAG and seeking its comments and advice on
matters of OSFI risk, control and governance;
Being briefed on audit-related issues and priorities raised by central agencies and, as may be requested
by the Superintendent, make recommendations on required action;
Being briefed, and advising the Superintendent on, the impact of government-wide; and initiatives to
improve management practices,
Reviewing the performance of the external auditor.
Integrity of Financial Statements
Annual Financial Statements – The Committee shall review and discuss with management and the external
auditor, OSFI’s audited annual financial statements and all significant accounting estimates and judgments
therein and, if appropriate, recommend to the Superintendent to approve the audited annual financial statements.
Quarterly Financial Statements – The Committee shall review and discuss with management and, if appropriate,
provide advice and comment on the quarterly unaudited financial statements.
Other Responsibilities
Other areas of responsibility within polices set out under Mission include:
Values and Ethics - The Committee shall review, at least annually, the arrangements established by
management to exemplify and promote OSFI’s values and compliance with laws, regulations, policies,
and standards of ethical conduct.
Risk Management - The Committee shall review OSFI’s corporate risk profile and risk management
arrangements and provide any related advice to the Superintendent.
Management Control Framework - The Committee shall review, at least annually, OSFI’s internal
control arrangements related to:
April 2011
Page 3 of 7
Office of the Superintendent of Financial Institutions Canada
IA
Internal Audit
IA
o
System of internal control
1
;
o
Financial reporting and financial disclosures; and
o
Risk-based assessment plans and associated results including internal audit and, as appropriate,
management-led audit reports.
Receive the Report on Plans and Priorities, Departmental Performance Report, and other significant
accountability reports (e.g. Annual Report) - The Committee shall review these reports as providing
context for the Committee’s deliberations and advice to the Superintendent and to provide advice, over
time, on any material misstatements or omissions that may come to their attention.
In addition to the above, the Committee shall prepare an Annual Report to the Superintendent that:
Summarizes the Committee's activities undertaken and the results of those activities;
Provides the committee’s assessment of OSFI’s system of internal control;
Documents any significant concerns the committee may have in relation to OSFI’s risk management,
control and governance framework and processes;
Provides, as needed, recommendations for the improvement of risk management, controls and
accountability processes / arrangements, including recommendations for the improvement of the internal
auditing function;
Provides the Committee's assessment of the capacity and performance of the IA.
A copy of this report is to be provided to the Comptroller General.
Constitution and Functioning of the Committee
Number of Members:
The Committee will consist of three to five independent external directors. The Superintendent is an ex-officio
member of the Committee.
Review of Mandate
The Superintendent and the Audit Committee shall review and assess the adequacy of this Mandate annually
and at such other times as they consider appropriate and shall make such changes as are considered necessary or
appropriate.
Committee Annual Work Plan
The Chair of the Committee is to prepare a plan to ensure that the annual and ongoing responsibilities are
scheduled and fully addressed. The plan shall be presented to the Committee for its endorsement and
recommendation to the Superintendent for approval.
1
Policy on Internal Control - Definition: System of internal control - Is a set of internal controls in a department to mitigate risks and
provide reasonable assurance in the following broad categories:
The effectiveness and efficiency of programs, operations, and
resource management, including safeguarding of assets; The reliability of financial reporting; and Compliance with legislation,
regulations, policies and delegated authorities.
As such, internal controls operate at all levels throughout the organization and are an integral part of an organization's risk
management framework. In practice, the departmental system of internal control is composed of several internal control systems
covering various management areas, such as financial management and financial reporting.
April 2011
Page 4 of 7
Office of the Superintendent of Financial Institutions Canada
IA
Internal Audit
IA
Annual Performance Evaluation
Each year, the Committee shall assess its performance and effectiveness in accordance with a process
established by the Committee for such purpose.
Retaining and Compensating Advisors
The Committee shall have the authority to engage independent counsel and any other external advisors as the
Committee may deem appropriate in its sole discretion and to set and pay the compensation for any advisors
employed by the Committee.
Appointment and Removal of Members of the Committee:
Superintendent appoints members in consultation with the Comptroller General of Canada for approval
by the Treasury Board.
The terms of the independent members of Audit Committee shall not exceed four years. No member
shall be appointed for more than two terms.
Vacancies shall be filled as soon as possible.
With the consent of the Comptroller General, the Superintendent may, by giving thirty days written
notice, remove an Audit Committee member. The reasons for removal of, or voluntary departure of, an
Audit Committee member must be communicated to the Comptroller General of Canada.
Committee Knowledge and Experience Requirements
The Committee, as a whole, shall meet the knowledge and experience requirements as set out in Appendix A, as
amended from time to time and the specific requirements of the TBS Policy on Internal Audit.
Audit Committee members shall receive formal orientation and training on the Committee’s responsibilities and
objectives, and on the business of OSFI.
Committee Financial Literacy
All Members of the Committee shall be familiar with private or public sector financial reporting, or undertake
to become familiar within the first year after appointment.
At least one Member shall be a financial expert who possesses:
An understanding of generally accepted accounting principles and financial statements;
Ability to assess the general application of such principles in connection with the accounting for
estimates, accruals, and reserves;
Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and
level of complexity of accounting issues that are generally comparable to the breadth and complexity of
issues that can reasonably be expected to be raised by OSFI's financial statements, or experience actively
supervising one or more persons engaged in such activities;
An understanding of internal controls and procedures for financial reporting; and
An understanding of audit committee functions.
Committee Chair
An independent member shall be the Chair of the Committee.
April 2011
Page 5 of 7
Office of the Superintendent of Financial Institutions Canada
IA
Internal Audit
IA
Committee Meetings
Quorum – A quorum of the Committee shall be a majority of its Members and no business shall be
transacted by the Committee except at the meeting at which a quorum of the Committee is present.
Secretary – The Chair may designate, from time-to-time, a person who may, but need not, be a Member
of the Committee, to be Secretary of the Committee. The Secretary shall prepare written Minutes of all
Committee meetings.
Time and Place of Meetings – The Committee shall meet at least four times a year. The Committee shall
schedule their meetings one year in advance so that OSFI’s senior management and IA can prepare the
information and reports required to support the Committee's work.
Attendees - The Chief Audit Executive will attend all Committee meetings. The Auditor General of
Canada (OAG), being the external auditor, will receive notice of every meeting of the Committee.
In Camera
Sessions
- As part of each meeting of the Committee, the independent members of the Committee
shall meet individually in camera with of the following:
Superintendent;
Managing Director, IA (Chief Audit Executive);
Managing Director, Finance and Corporate Planning (Senior Financial Officer);
Representative of the Office of the Auditor General, if attending; and
Any other officials the Committee may determine to assist in the discussion.
Access
As required, officers of the Treasury Board Secretariat and the Office of the Auditor General are to be provided
with access to the Committee to address matters of mutual interest or concern.
April 2011
Page 6 of 7
Office of the Superintendent of Financial Institutions Canada
IA
Internal Audit
IA
April 2011
Page 7 of 7
Appendix A – Qualifications of the Audit Committee
Among the members of the Audit Committee there needs to be high-level knowledge / experience in the
following areas:
Financial knowledge / experience
GAAP
Financial Statements
Internal financial reporting
Senior financial industry operating knowledge / experience
Deposit taking
Life insurance
Property & Casualty insurance
Pensions
Investment banking
Risk-based audit / investigative knowledge / experience
GAAS / IIA standards
TBS Internal Audit and Evaluation policy
Supervisory Framework
Risk-based audit plans / reporting
Regulatory knowledge / experience
Rules frameworks
Regulatory approaches / tools
General business knowledge
Risk / Risk Management
Performance measurement
Controls
Governance (including corporate planning and reporting)
Strategy development
Communication (media, government, international regulators)
Basic contract law / business operations
General Competencies of Audit Committee Members:
Independence / objectivity (for at least some members)
Communication skills
Not afraid to ask the ‘tough’ questions
Able to see the ‘forest’ (not just focussed on the ‘trees’)