Internal Control Mechanism

It is the policy of Globe to constitute and maintain an Audit and RPT Committee that shall provide assistance to the Board of Directors in fulfilling their oversight responsibility to the shareholders 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. The Audit and RPT Committee Charter approved by the Board defines clearly the roles and responsibilities of the Audit and RPT Committee. Management however, has primary responsibility for financial statements and reporting process, internal controls, legal and regulatory compliance, and risk management.

 

 

Audit and RPT Committee

The Audit and RPT Committee is composed of four (4) non-executive directors appointed by the Board, three (3) of whom are independent directors including the chair of the Committee.

 

The Audit and RPT Committee meets at least four times during the year and invites the President and CEO, CFO and concurrently the Treasurer and CRO, independent auditors, internal auditors, and other members of management, as needed based on the meeting agenda. During these meetings:

 

  • The Committee reviews the financial statements and all related disclosures and reports prepared and presented by the CFO 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, including key audit matters, 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 ASM.

     

  • The Committee also approves the work plan of 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 to discuss the results of their audits, ensuring that management is taking appropriate corrective actions on internal control issues and areas for improvement in a timely manner.

     

  • The Committee ensures tenders for independent audit services are conducted on a regular basis. The Committee recommends the appointment, retention or discharge of the independent auditors, 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 the Annual Report.

     

  • On an annual basis, the Committee reviews the independent auditors’ 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 audit firm and the company’s total consultancy expenses, respectively.

     

  • The Committee reviews Globe Internal Audit’s activities, staffing, organizational structure and changes in their work plan, and assesses the effectiveness of the internal audit function.

     

  • The Committee reviews the results of management’s annual risk assessments based on reports provided by CRO covering information on risk exposures and risk management activities, and as supported by results of internal audit reviews.

     

  • The Committee reviews and discusses with the management, the internal auditors and the independent auditors; and reports to the Board of Directors, on an annual basis, the adequacy and effectiveness of the company’s internal controls system and risk management systems, in all material respects.  

     

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 processes, 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 and RPT 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 provides the Audit and RPT Committee with periodic reports on risk exposures and risk management activities by management, while Globe Internal Audit provides assurance on the effectiveness of the risk management system and processes. Each Board Committee has their own Charter.

 

The Board designated the Audit and RPT Committee as the overall risks 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 and RPT 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 CG, the Committee also reviews and assesses the adequacy of its Charter annually, seeking Board approval for any amendments. The most recent Charter review was done early in 2017 in compliance with the new SEC Code of Corporate Governance.

 

In compliance with our MCG, SEC Memo Circular No. 4 (Series of 2012), and aligned with the ACGS and the new SEC Code of Corporate Governance, the Committee conducts an annual assessment of its performance to benchmark its practices against the expectations set out in the approved Charter. The results of the self-assessment and any ensuing action plans to ensure that the Committee will continue to meet Board’s, management’s, and shareholders’ expectations are reported to the Board.

 

On annual basis, our President and CEO, CFO, and CAE provide a written certification to the Audit and RPT Committee confirming the reliability of financial statements for the year; full compliance with financial and CG regulatory requirements and reporting; and attesting that the company has sound internal controls and compliance system in place.

Internal Audit

An Internal Audit function is established as a fundamental part of Globe’s CG practices. An Internal Audit Charter, adopted by the Audit and RPT Committee, establishes the purpose, authority, responsibility, organizational structure, and reporting relationships of the internal audit function.

Internal Audit is a service, providing an independent, objective assurance and consulting function within Globe, and sharing our common goal of adding value for our stakeholders through a systematic approach in evaluating the effectiveness of governance, risk management, control processes after consideration of objectives, strategies and risks.  Globe Internal Audit provides reasonable assurance to the Board, management and the stockholders on the integrity of the financial statements and financial reporting processes and principles against material misstatements; effectiveness and appropriateness of internal controls on the safeguarding of assets, operations, and information systems; and compliance with laws, rules and regulations.

Globe IA also assists and supports management in continuously instilling and nurturing Control Self-Assessment (CSA) environment at Globe through facilitation of self-assessment activities among various business groups. The Audit and RPT Committee regards its relationship with Internal Audit as having a vital role in supporting the Audit and RPT 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 and RPT Committee and administratively, to the President and CEO. The Committee, having appointed the CAE, also concurs in his/her replacement, reassignment, or dismissal.

The CAE works closely with the Audit and RPT Committee in maintaining an effective internal audit function by managing the entire operations, and strongly supports the attainment of corporate objectives through coverage of most critical processes in the conduct of risk-based assurance reviews. The CAE ensures risks/issues are timely called-out, escalated, and monitored while management remains primarily responsible for resolving the risks/issues. The CAE continuously improves the internal audit operating process and standards and ensures strict compliance with International Standards for the Professional Practice of Internal Auditing (the Standards) and global best practices. Additional responsibilities include, among others, strengthening leadership and talent bench, uplifting performance management and managing internal costs.

Globe IA maintains, reviews, and assesses the adequacy of its Charter annually to ensure conformance with the Standards and appropriateness for enabling good CG. The result of the periodic assessment and any arising revisions are communicated and approved by the Audit and RPT Committee. 

Globe IA governs its internal audit activities in conformance with the Institute of Internal Auditor’s Code of Ethics, and our Code of Conduct. The CAE is responsible for overall conformance with the Standards. The CAE develops, maintains, and communicates an appropriate and effective quality assurance and improvement program (QAIP) that covers all aspects of internal audit reviews and activities. The Audit and RPT Committee also receives periodic reports on the status of internal audit activities, achievement of key performance indicators, and QAIP. To ensure consistent conformance with the Standards, Globe IA periodically undergoes an independent external Quality Assurance Review (QAR). In the most recent external QAR in 2013, Globe IA achieved the highest rating, “Generally Conforms”, that can be achieved in the QAR process.

Globe IA adopts a risk-based audit approach in developing its annual work plan ensuring that all risks, mapped to eTOM (enhanced telecommunications operations map) based processes, with integrated risk assessments for processes across the enterprise, are captured in the audit universe. Globe IA’s annual work plan is reassessed 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 and RPT Committee reviews and approves the annual work plan and all deviations. The Audit and RPT Committee also ensures that audit resources are adequately allocated to and focused on the areas of highest risk.

To instill 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 our business processes, network and IT systems, internal controls, new accounting and auditing standards and regulatory updates. The audit team is composed of professionally certified accountants, internal auditors, IT and information security auditors, control self-assessors, and licensed engineers, among others. In addition, Globe IA has been actively participating in Ayala Group and Singtel Internal Audit Networks to benchmark and share knowledge on 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.

External Audit

Globe 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 and RPT Committee in helping ensure the integrity of the company’s financial statements and reporting process.

It is the practice of the company every three years or sooner to tender bid for the external audit services of independent auditors. The last tender bid process was conducted in Q4/2014. The company also conducts on an annual basis an independent auditors’ performance appraisal. From the results, the Audit and RPT Committee evaluates and proposes to the Board for endorsement and approval of the stockholders, the appointment of the independent auditors. The endorsement is presented to the stockholders for approval at the ASM. The representatives of the independent auditors are expected to be present at the ASM to have the opportunity to make a statement on Globe’s financial statements and results of operations if they desire to do so and be available to respond to appropriate questions during the meeting.

In the meeting last 13 April 2016, the shareholders 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 auditor of Globe Telecom, Inc. and Subsidiaries (Globe Group) for the calendar year 2016.  NA/DP has been the independent auditor of Globe Group since 2015. In accordance with regulations issued by the SEC, the audit partner principally handling the company’s account shall be rotated every five (5) years or sooner. 

There were no disagreements with NA/DP, 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 pursuant to the regulatory and statutory requirements for the years ended 31 December 2016 and 2015 amounts to ₱16.96 million and ₱15.36 million, respectively, inclusive of 7.5% out-of-pocket expenses (OPE). In addition to performing the audit of Globe Group’s financial statements, NA/DP was selected in accordance with established procurement policies to provide non-audit services in 2016.

The Audit and RPT Committee has an existing policy to review and to pre-approve the audit and non-audit services rendered by Globe Group’s 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. This is to ensure that the independent auditors maintain the highest level of independence from the company, both in fact and appearance.

The Audit and RPT Committee has reviewed and approved in advance the nature of all non-audit services rendered in 2016 by NA/DP and the corresponding fee, and concluded that these do not impair their independence. For 2016, NA/DP has confirmed to the Audit and RPT Committee that the non-audit services reflect permissible services for an audit client.

The aggregate fees billed by NA/DP are shown below:

Audit and Audit-Related Fees represent 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 years ended 2016 and 2015. These also include assurance and related services that are reasonably related to the Globe Group’s 2016 financial statements pursuant to the regulatory requirements. NA/DP was not engaged to perform audit-related services for 2016 and 2015.

Tax Fees. Globe has not engaged NA/DP for any tax-related services for fiscal years 2016 and 2015, respectively. There were no tax fees incurred for the said years.

Non-Audit Fees for 2016 pertains to services rendered by NA/DP on the transfer of knowledge through a series of trainings and supervised workshops to enable Globe to assess its current state and transition to Philippine Financial Reporting Standards (PFRS) 15: Revenue from Contracts with Customers and will not involve design and implementation of an accounting system. Non-Audit fees in 2016 do not outweigh fees for audit and audit-related services. NA/DP was not engaged to perform non-audit services for 2015.

The fees presented above include out-of-pocket expenses incidental to the independent auditors services. These information are also contained and discussed in Globe’s ASR (page 116) and our Audited Financial Statements.