Mechanisms to ensure the integrity of the financial reports of a company listed on the Kuwait Stock Exchange

The integrity of the company’s financial statements is one of the important indicators of the integrity and credibility of the company in presenting its financial position, and consequently increases investors’ confidence in the data and information that the company provides, and allows shareholders to exercise their rights. So, the company shall develop a mechanism so as to ensure the integrity of its financial statements in addition to supervising and reviewing the accounts and financial statements of the company through the Audit Committee, and ensuring the independence and integrity of the external financial auditor.

The executive management shall undertake to the company’s board of directors in writing that the company’s financial reports are presented in a sound and fair manner, and that they review all company’s financial aspects, including data and operational results, and that they are prepared in accordance with international accounting standards approved by the authority. In addition, the annual report shall include a pledge submitted to the shareholders by the company’s board of directors of the integrity of all financial statements as well as reports related to the company’s activity.

These aforementioned pledges contribute to reinforcing the accountability, whether the accountability of the management by the Board of Directors, or the Board of Directors’ accountability by the shareholders.

The Board of Directors shall form an audit committee whose primary role is to ensure the integrity of financial reports and internal control systems.

The presence of an audit committee is one of the main features that indicates the application of good governance rules, as this committee tries to establish a culture of compliance within the company by ensuring the integrity of the company’s financial reports, un addition to ensuring the adequacy and effectiveness of the internal control systems applied in the company.

Accordingly, the Board of Directors shall form an audit committee that is consistent with the nature of the company’s activity, and that has complete independence, in addition to the necessity of having human cadres with specialized expertise when forming the committee so as to carry out the tasks entrusted to them.

The most important characteristics of the audit committee are as follows:

1. The Board of Directors shall form an audit committee of no less than three members, provided that at least one of its members shall be an independent member, provided that its membership is not occupied by the Chairman of the Board of Directors or the executive members of the Board of Directors.
2. One, at least, of the members of the committee shall have scientific qualifications and/or practical experience in the accounting and financial fields, and the committee shall have the right to seek external expertise after getting the approval of the board of directors.
3. The Board of Directors determines the term of membership of the committee members and its way of work.
4. In the event that any conflict occurs between the recommendations of the Audit Committee and the decisions of the Board of Directors, including when the Board of Directors refuses to follow the recommendations of the Committee in relation to the external auditors and/or the internal auditor, the Board shall include a statement in the Governance Report that clearly details these recommendations and the reason or reasons for the Board of Directors’ decision not to adhere to these recommendations.
5. The Audit Committee may, at the company’s expense, consult any independent advisory body.
6. The Audit Committee shall meet regularly at least four times in a year and on a quarterly basis, and it shall take the minutes of its meetings.
7. Periodic meetings shall be held with the external auditors, and at least four times with the internal auditor. The internal auditor and the external auditor shall also have the right to request a meeting with the committee where it is necessary for work without the presence of the executive management.

The following are the powers and responsibilities of the Audit Committee:

1. Reviewing the periodic financial statements before presenting them to the Board of Directors, and expressing opinion and recommendation on them to the Board of Directors, so as to ensure fairness and transparency of financial reports.
2. Recommending to the Board of Directors the appointment and reappointment of the external auditors or changing them and determining their fees. When recommending the appointment, it shall be taken into account to ensure their independence, and to review their appointment letters.
3. Following up on the work of the external auditors, and ensuring that they do not provide services to the company other than the ones required by the audit profession.
4. Studying the external auditors’ notes on the company’s financial statements and following up on procedures that has been taken about them.
5. Studying the accounting policies used and giving opinions and recommendation to the Board of Directors in this regard.
6. Assessing the adequacy of the internal control systems applied within the company and preparing a report that includes the opinion and recommendations given and made by the committee in this regard.
7. Technical supervision over the company’s internal audit department in order to verify its effectiveness in carrying out the jobs and tasks specified by the Board of Directors.
8. Recommending the appointment, transfer, and dismissal of the Director of Internal Audit, and evaluating its performance and the performance of the Internal Audit Department.
9. Reviewing and approving the audit plans proposed by the internal auditor, and making observations thereon.
10. Reviewing the results of the internal audit reports, and ensuring that the necessary corrective actions have been taken regarding the observations contained in the reports.
11. Reviewing the results of the reports of the supervisory authorities and ensuring that the necessary measures have been taken in this regard.
12. Ensuring the company’s compliance with relevant laws, policies, systems and instructions.

The annual ordinary general assembly appoints the company’s auditor based on the proposal of the Board of Directors, provided that the following is taken into account:

1. The recommendation of the auditor shall be based on a recommendation made by the Audit Committee submitted to the Board of Directors.
2. The auditor shall be one of the auditors registered in the special register with the Capital Markets Authority, so that it fulfills all the conditions stipulated in the requirements of the Authority’s decision regarding the auditors’ registration system.
3. It shall be ensured that the external auditor is independent from the company and its board of directors, and that it does not carry out additional work for the company that does not fall within the reviewing and audit work that may affect impartiality or independence.
4. That the auditor shall be allowed to discuss its opinions with the Audit Committee before submitting the annual accounts to the Board of Directors for a decision on them.
5. That the external auditor shall be enabled to attend the meetings of the general assemblies and read the report prepared by it to the shareholders, explaining any obstacles or interferences it faced by the Board of Directors during the performance of its work. In addition, the external auditor shall inform the Capital Markets Authority of any material violations or obstacles it faced and their details.

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