Ensuring Transparency and Accountability With Proper Board Decisions
Is Your Board Audit Holding Everyone Accountable?
With the completion of the legislative structure and continuous updates, it has become important to monitor the decisions of a company’s Board of Directors and ensure the completeness of legal procedures and the integrity of decisions issued by invalidity to avoid legal liability to stakeholders.
Therefore, the task of auditing the Board of Directors’ decisions is one of the most sensitive elements of the company’s administrative responsibilities. Through this article, we will highlight the two main headings of this substantive task following the provisions of Saudi law.
Regulatory Framework and Best Practices
These regulations mandate the formation of an audit committee, the selection of qualified auditors, and the review of financial statements and internal control systems.
Internal Regulatory System
The new corporate system, the governance regulation, and the relevant decisions have ensured the existence of an internal regulatory system to assess the evolution of the company’s risk factors and existing regulations to cope with radical or unexpected changes.
It also stresses the need to evaluate the performance of the Governing Council and senior management in the application of the internal control system, including identifying the number of times the corporate board has been notified of control issues (including risk management) and the method by which the board addressed these issues.
Thus, it indicates the failures or weaknesses in the application of internal control or emergencies that have affected or may affect the company’s financial performance and the procedure followed by the company in addressing these failures.
External Auditors
An external auditor prepares an objective and independent report for the Board of Directors and shareholders. Audit committee members will indicate whether the company’s financial statements clearly and fairly reflect the company’s financial position and substantive performance.
The external audit can conclude with an audit committee meeting and the disclosure of their findings. The conclusion to a board audit should then make things transparent to shareholders and public company management. The audit can be used to assess the internal performance and examine the solutions presented for future improvement.
Corporate Board Audit, Composition, and Audit Committee Member Selection
An audit committee shall be formed by a resolution of the executive board and the members of the audit committee shall be from the shareholders or others.
- The Executive Director may not be among the members of the audit committee.
- The number of members of the audit committee shall not be less than three or more than five, provided that one of its members is specialized in finance and accounting.
- The board audit committee shall be competent in monitoring the company’s activities and ensuring the integrity and effectiveness of the reports, financial statements, and internal control systems.
- The internal board audit unit or department shall be composed of at least one internal auditor whose appointment is recommended by the audit committee.
- The internal auditor is responsible before the audit committee.
- The audit committee shall be competent, independent, and adequately trained.
- They shall not be entrusted with any other functions that conflict with the goals of the internal audit duties or infringe upon its independence.
- The board audit committee also nominates the external auditor, and there must be no conflict of interest between the publicly traded company’s interest and that of the auditor.
The composition of the executive board and the characteristics of the audit committee play a crucial role in the effectiveness of the audit process. A diverse and independent board, coupled with a skilled audit committee, ensures a robust audit of board decisions. The selection of auditors, whether from the Big 4 or other reputable firms, is a decision that reflects the company’s commitment to high standards of accountability and transparency.
The Board Audit Committee’s Role and Responsibilities
The audit committee is tasked with several key responsibilities, including the oversight of financial reporting, monitoring of internal controls, and ensuring the independence and performance of external auditors. The committee’s role extends to resolving any conflicts between the audit committee and the board, thereby upholding the principles of good corporate governance.
Executive Board of Directors Fined for Not Having a Legal Controller
At the regular board meeting, the publicly traded company announced losses of 63% of the company’s capital declared in the establishment. This decision was not audited by a competent legal controller, which led to the referral of board members to investigate and impose a fine of half a million riyals as a result of the board’s failure to comply with the provisions of the corporate system.
In another scenario, an emergency shareholders’ meeting could have been recommended to vote on the decision to increase or reduce capital to avoid such a fine.
How the Attorney at Khalaf Bandar Law Firm Can Help
The audit of corporate board decisions is a cornerstone of corporate governance in Saudi Arabia. It ensures that companies operate with transparency and accountability, which is essential for building trust with shareholders and the wider community. As Saudi Arabia continues to evolve and integrate into the global economy, the audit of board decisions will remain a key factor in the success and sustainability of its corporate sector.
Through his experience in business law, Attorney Khalaf Bandar can assume internal control over the compliance of your business with Saudi laws and indicate the legality of decisions issued by the Board of Directors to guarantee shareholders’ rights and avoid subsequent legal liability.
If you are a member of an executive board of directors of a Saudi company, or you are a shareholder residing outside the Kingdom, you can now authorize us to monitor your business and exercise your legal rights. We are here to help you comply and avoid fines. Contact us now to book your consultation.
