Rule 4: Ensuring Financial Report Integrity
Having an audit and review committee is a key feature of good governance, promoting a culture of compliance within the company by ensuring the accuracy and integrity of its financial reports and the adequacy and effectiveness of its internal control systems.
The board has established a permanent audit committee, ensuring its composition aligns with the company's nature and that it maintains complete independence and specialized expertise to perform its tasks.
The audit committee's work regulations have been prepared according to the Corporate Governance Regulations issued by the CMA, specifying the appointment process, responsibilities, meeting protocols, legal quorum, and procedures. The committee's responsibilities include:
First: Financial Reports
- Study the preliminary and annual financial statements of the company before presenting them to the Board of Directors, expressing opinions and recommendations to ensure integrity, fairness, and transparency.
- Provide a technical opinion—upon request from the Board—on whether the Board’s report and the company’s financial statements are fair, balanced, comprehensible, and include information that enables shareholders and investors to assess the company’s financial position, performance, business model, and strategy.
- Examine any significant or unusual matters included in the financial reports.
- Investigate any issues raised by the company's Chief Financial Officer, those fulfilling his duties, the compliance officer, or the external auditor.
- Review the accounting policies adopted by the company and provide opinions and recommendations to the Board regarding them.
- Study any significant or unusual matters included in the financial reports.
Second: Internal Auditor
- Study and review the company’s internal control, financial, and risk management systems.
- Review internal audit reports and follow up on corrective actions for the observations contained therein.
- Supervise and monitor the performance and activities of the internal auditor and the internal audit department to ensure the necessary resources are available and effective in performing their duties.
- Recommend to the Board the appointment of the head of the internal audit unit or department or the internal auditor and propose their remuneration.
Third: External Auditor
- Recommend to the Board the nomination or dismissal of external auditors, determine their fees, and evaluate their performance after verifying their independence and reviewing the scope of their work and terms of engagement.
- Ensure the independence, objectivity, fairness, and effectiveness of the external auditor’s work, considering relevant rules and standards.
- Review the external auditor’s plan and work, ensuring no technical or administrative tasks outside their scope of work are performed, and provide feedback on this.
- Respond to inquiries from the company’s external auditor.
- Review the external auditor’s reports and observations on the financial statements and follow up on actions taken regarding them.
- Review and approve all non-audit services to ensure the auditors' independence.
Fourth: Compliance Assurance
- Review regulatory reports and ensure that the company has taken the necessary actions regarding them.
- Ensure the company’s compliance with relevant systems, regulations, policies, and instructions.
- Review proposed contracts and transactions with related parties and make recommendations to the Board regarding them.
- Notify the Board of any matters deemed necessary for action and provide recommendations on steps to be taken.
Fifth: Values and Ethics
- Review and evaluate policies and procedures related to codes of values and ethics.
- Review compliance reports regarding systems, regulations, policies, unethical behavior, and so forth.
Sixth: Governance
- Obtain necessary assurances regarding the application of governance rules from the company’s management.
Seventh: Fraud, Money Laundering, and Corruption
- Oversee management arrangements to prevent and combat fraud, money laundering, and corruption.
- Ensure actions are taken against perpetrators of fraud, money laundering, and corruption.
- Support management in ensuring the existence of programs and controls to combat fraud, money laundering, and corruption.
Eighth: Internal Control
- Review the adequacy and completeness of the internal control system.
- Review the method and framework through which management monitors operations, verifying the suitability and effectiveness of internal control systems.
Ninth: Annual Report
- The committee prepares an annual report that includes a comprehensive evaluation of control and compliance operations, the committee’s activities, functions, membership, number of meetings held, and attendance throughout the year. The audit committee’s report must detail the execution of its functions and tasks as stipulated in these regulations, including its recommendations and opinions on the adequacy of internal control, financial, and risk management systems. The Board must retain sufficient copies of the audit committee’s report at the company's headquarters and publish it on the company’s and the financial market’s websites when issuing the invitation to the General Assembly to enable shareholders to obtain a copy. A summary of the report is read during the General Assembly.
Committee Composition Considerations
The committee should be composed as follows:
- The number of committee members should be no less than three and no more than five.
- None of them should be executive board members.
- At least one member should be an independent board member.
- One member should be specialized in financial and accounting matters.
- The Chairman of the Board should not be a member of the audit committee.
- Those who have worked in the company's financial or executive management or with the company’s external auditor within the past two years cannot be committee members.
- All committee members should be familiar with financial rules, with at least one member specialized in financial and accounting matters.
- Each member must have a university degree or its equivalent from a recognized educational institution in Saudi Arabia.
- A committee member should not serve on more than five audit committees of listed companies simultaneously.
- A member should not have been previously convicted of any crime involving dishonesty or breach of trust.
