Internal Control Mechanism
It is our policy to maintain effective internal control system and mechanisms relating to our financial statements and financial reporting process; internal and financial reporting principles, policies and systems; independent auditor's qualifications and independence; internal audit function and independent auditor's performance; and compliance with legal, regulatory, corporate governance requirements.
The Audit Committee's roles and responsibilities are defined clearly in the Audit Committee Charter approved by the Board. The Committee supports the corporate governance of the Company by fulfilling its oversight responsibility relating to: a) the integrity of the financial statements and the financial reporting process and principles; b) internal controls; c) the qualifications, independence, remuneration and performance of the independent auditors; d) staffing, focus, scope, performance and effectiveness of the internal audit function; e) risk management; and f) compliance with legal, regulatory and corporate governance requirements. Management however, has primary responsibility for financial statements and reporting process, internal controls, legal and regulatory compliance and risk management.
All members of the Audit Committee are appointed by the Board. The Committee is composed of three members, all of whom are independent directors. As such, an independent director also chairs the Audit Committee.
The Audit Committee meets at least four times during the year and invites non-members, including the President and CEO, Chief Finance Officer (who is also the Chief Risk Officer or CRO), independent auditors, internal auditors, and other key persons involved in company governance, to attend meetings where necessary. During these meetings:
The Committee reviews the financial statements and all related disclosures and reports certified by the Chief Finance Officer, and released to the public and/or submitted to the SEC for compliance with both the internal financial management handbook and pertinent accounting standards, including regulatory requirements. The Committee, after its review of the quarterly unaudited and annual audited consolidated financial statements of Globe Telecom, Inc. and Subsidiaries, endorses these to the Board for approval. The Board of Directors, in turn, reviews, approves, and affirms the true and fair representation of the annual audited consolidated financial statements and presents the same in the Annual Stockholders' Meetings (ASM).
The Audit Committee also approves the work plan of the Globe Internal Audit (IA), as well as the overall scope and work plan of the independent auditors. The committee meets with the internal auditors and independent auditors and discusses the results their audits, ensuring that management is taking appropriate corrective actions in a timely manner, including addressing internal controls and compliance issues, if any.
The Committee ensures tenders for independent audit services are conducted on a regular basis. The Audit Committee recommends the appointment, retention or discharge of the independent auditors, and reviews and recommends audit fees or the remuneration of the independent auditors to the full Board. The Board, in turn, submits the appointment of the independent auditors and audit fees for approval of the stockholders at the ASM. The amount of audit fees is disclosed in our Annual Reports.
On an annual basis, the Committee reviews the independent auditor's performance and assesses the independent auditor's qualifications, skills, resources, effectiveness, and independence. To limit the possible risk of conflict of interest, the Committee also reviews and approves in advance the proportion of audit services vs. non-audit services performed by the independent auditors; and the corresponding audit fees vs. non-audit fees paid to the independent auditors, in relation to the SEC regulation on "permitted" vs. "not permitted" services to be rendered by independent auditors and the significance of the fees to the total service revenues of the independent auditors' firm and the company's total consultancy expenses, respectively.
The Committee reviews the plans, activities, staffing, and organizational structure, and assesses the effectiveness of the internal audit function.
The Committee reviews the results of management's quarterly and annual risk assessments based on reports provided by CRO-led Enterprise Risk Management Services team covering information on risk exposures and risk management activities, and as supported by results of Internal Audit reviews.
The collective responsibility over our risk management oversight rests with the Board of Directors. To delineate the scope of such responsibility, the various Board committees are designated with oversight function on specific risks. The Executive Committee has oversight on corporate strategic risks, technology, and operational risk management, putting in place the infrastructure for risk management systems that assess risks on an integrated cross-functional approach; reviews and assesses the adequacy of our strategic, technology, and operational risk management process, jointly with Management. The Finance Committee oversees our financial risk management, including risks related to capital structure, acquisitions and divestments, treasury activities, tax strategy, and compliance. The Audit Committee provides oversight of the financial reporting and operational risks specifically on financial statement and reporting, internal controls, legal or regulatory compliance, corporate governance, risk management, and fraud risks. The CRO-led Enterprise Risk Management Services team provides the Audit Committee with periodic reports on risk exposures and risk management activities by our Senior Leadership Team (SLT), while Globe Internal Audit provides assurance on the effectiveness of the risk management system and processes.
The Board designated the Audit Committee as the overall risk aggregator for all of the Board committees, enabling an integrated approach to an enterprise-wide risk management oversight at Board level and a coordinated view of risks across the enterprise. The Audit Committee reports regularly to the Board of Directors on our risk management efforts, providing the Board with a more collaborative and effective review of risks across the company and assurance over our overall risk management, that aids the Board in making strategic decisions for the company.
With guidance provided by the Board, Management remains primarily responsible for the development of the design and implementation of risk management plans and frameworks, policies, and systems intended to address the identified risks.
The Audit Committee reports after each meeting and provides a copy of the minutes of its meetings to the Board. To ensure compliance with regulatory requirements and assess the appropriateness of the existing Charter for enabling good corporate governance, the Committee also reviews and assesses the adequacy of its Charter annually, seeking Board approval for any amendments. The most recent Charter was approved by the Board in February 2015.
The Committee conducts an annual assessment of its performance to benchmark its practices against the expectations set out in the approved Charter, in compliance with our Manual of Corporate Governance, with SEC Memorandum Circular No. 4, series of 2012, and aligned with the ASEAN Corporate Governance Scorecard (ACGS) and the SEC Revised Code of Corporate Governance. The results of the self-assessment and any ensuing action plans formulated to improve the Committee's performance are reported to the Board. The report of the Audit Committee to the Board of Directors is also disclosed through our Annual & Sustainability Report.
It is our policy to establish and support an Internal Audit function as a fundamental part of our corporate governance practices. Internal Audit is a service, providing an independent, objective assurance and consulting function within Globe Telecom, and sharing our common goal of creating and enhancing value for our stakeholders, through a systematic approach in evaluating the effectiveness of our risk management, internal control and governance processes. Globe Internal Audit (IA) assists and supports Management in continuously instilling and nurturing the Control Self-Assessment (CSA) environment at Globe through facilitation of self-assessment exercises among various business groups. The Audit Committee regards its relationship with Internal Audit as having a vital role in supporting the Committee in the effective discharge of its oversight role and responsibilities.
Globe IA performs its auditing functions faithfully by maintaining independence from Management and controlling shareholders as it reports functionally to the Board, through the Audit Committee and administratively, to the President & CEO. The Committee, having appointed the Chief Audit Executive, also concurs in his/her replacement, reassignment, or dismissal.
Globe IA maintains, reviews and assesses the adequacy of its Charter annually to ensure conformance with the International Standards for the Professional Practice of Internal Auditing (the Standards) and appropriateness for enabling good corporate governance. Any amendments to the Charter are submitted to the Audit Committee for approval.
Globe IA adopts a risk-based audit approach in developing its annual work plan ensuring that all risks, mapped to eTOM-based (enhance Telecom Operations Map) processes, with integrated risk assessments for processes across the enterprise, are captured in the audit universe. Globe IA's annual work plan is re-assessed quarterly to consider emerging risks and the changing dynamics of the telecommunications business, thereby allowing maximum and timely coverage of key/critical risk areas. The Audit Committee reviews and approves the annual work plan and all deviations and ensures that internal audit examinations cover at least the evaluation of adequacy and effectiveness of risk management and control processes encompassing the company's governance, operations, information systems, reliability and integrity of financial and operational information, effectiveness and efficiency of operations, safeguarding of assets and compliance with laws, rules and regulations. The Audit Committee also ensures that audit resources are adequately allocated to and focused on the areas of highest risk.
The Audit Committee meets with the internal auditors, and discusses the results of their audits, ensuring that management is taking appropriate corrective actions in a timely manner, including addressing risk management, internal controls, regulatory and compliance issues. The Committee also receives periodic reports on the status of internal audit activities, key performance indicators' accomplishments and quality assurance and improvement programs.
Globe IA governs its internal audit activities in conformance with the Institute of Internal Auditor's Code of Ethics, and our Code of Conduct. To ensure consistent conformance with the Standards, Globe IA subjected its activities to its 2nd external Quality Assurance Review (QAR) in 2013, which resulted in a "Generally Conforms" rating, the highest rating that can be achieved in the QAR process.
Geared towards excellence, Globe IA provides for continuing professional and personal development for all internal auditors to equip them in the conduct of reviews, with focus on acquiring expertise on Globe Telecom's business processes, network and IT systems, internal controls, new accounting and auditing standards and regulatory updates. In addition, the group has been actively participating in Ayala Group and SingTel Internal Audit Network that aims to benchmark and share knowledge, leading global best practices including information on methodology, process improvement, and audit tools to develop a network of world class, multi-skilled, internal audit professionals.
The Company engages the services of independent auditors to conduct an audit and obtain reasonable assurance on whether the financial statements and relevant disclosures are free from material misstatements. The independent auditors are directly responsible to the Audit Committee in helping ensure the integrity of the Company's financial statements and reporting process.
It is the practice of the Company every three (3) years or sooner to tender bid for the external audit services of independent auditors. The most recent tender bid process was conducted in Q4/2014. Also, the Company conducts on an annual basis an independent auditor's performance appraisal. From the results, the Audit Committee evaluates and proposes to the Board for endorsement and approval of the stockholders, the appointment of the independent auditors. The endorsement is submitted to the stockholders for approval at the ASM. The representatives of the independent auditors are expected to be present at the ASM and have the opportunity to make a statement on the Company's financial statements and results of operations if they desire to do so. The auditors are also expected to be available to respond to appropriate questions during the meeting.
In the meeting last 7 April 2015, the stockholders appointed the accounting firm of Navarro Amper & Co./Deloitte Philippines (NA/DP), an affiliate of Deloitte Southeast Asia Ltd. (a member firm of Deloitte Touche Tohmatsu Limited) as the Independent Auditors of Globe Telecom and Subsidiaries (Globe Group) for the calendar year 2015. NA/DP replaced SGV & Co., a member firm of Ernst and Young (EY), who served as the independent auditors of the Globe Group for more than 30 years. The change in independent auditors is consistent with our thrust on good corporate governance.
There were no disagreements with the Company's independent auditors on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures.
Fees approved in connection with the audit and audit-related services rendered by NA/DP and SGV & Co. pursuant to the regulatory and statutory requirements for the years ended 31 December 2015 and 2014 amounts to P15.36 million and P16.40 million, are inclusive of 7.5% and 10% out-of-pocket expenses (OPE), respectively. In addition to performing the audit of Globe Group's financial statements, SGV & Co. and other EY firms were also selected in accordance with established procurement policies, to provide other services in 2014.
In 2015, Deloitte Philippines was not engaged to perform non-audit related service for Globe. There were no non-audit fees incurred for the said year.
The Audit Committee has an existing policy to review and to pre-approve the audit and non-audit services rendered by our independent auditors. It does not allow the Globe Group to engage the independent auditors for certain non-audit services expressly prohibited by SEC regulations to be performed by independent auditors for its audit clients. These safeguards are kept in place to ensure that the independent auditors maintain the highest level of independence from the Company, both in fact and appearance.
The aggregate fees billed by NA/DP are shown below for the year 2015:
|(Amount in millions of pesos)|
|Audit and Audit Related Fees||P15.36|
*Excludes 2015 audit fee for GTI HK of P687K performed by Deloitte HK; P308K for GTI EU; P556K for GT UK audit services performed by Wellden and Turnbull LLP; and 2015 audit services for GT SG of P215K performed by Ardent.
Audit and Audit-Related Fees. Represents audit of Globe
Group's annual financial statements and review of quarterly
financial statements in connection with the statutory and regulatory
filings or engagements for the year ended 2015. NA/DP was not
engaged to perform audit-related services for 2015.
Tax Fees. The Company has not engaged NA/DP and SGV & Co. for any tax-related services for fiscal years 2015 and 2014, respectively. There were no tax fees incurred for the said years.
Non-Audit Fees. In 2015, NA/DP was not engaged to perform non-audit related service. There were no non-audit fees incurred for the said year.
The fees presented above include out-of-pocket expenses incidental to the independent auditor services.
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