Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the May 22, 2007 issue of the Bangkok Post.
By Prasan Chuapanich and Varunee Pridanonda
In Thailand, regulators are focusing more and more the reliability of financial statements to protect those using a company's financial data, especially for listed companies in the Stock Exchange of Thailand. While the Securities and Exchange Commission has yet to implement legislation similar to the Sarbanes-Oxley Act of 2002 in the United States, which requires chief executive officers (CEOs) and chief financial officers (CFOs) to certify the effectiveness of internal control over financial reporting, it is expected to do so in the near future.
Therefore, whether or not CEOs and CFOs of listed companies in Thailand are currently required to certify the effectiveness of internal control over financial reporting, they should be looking at the framework they have in place to ensure that their companies' financial statements are reliable.
Are there guidelines in place that could help Thai CEOs and CFOs maintain high quality internal control?
Yes, the Committee of Sponsoring Organisations of the Treadway Commission (COSO), which is a voluntary private-sector organisation dedicated to improving the quality of financial reporting, has developed guidance for internal control over financial reporting for small public companies in the US. This guideline could be used as a framework for assessing and implementing internal control systems for Thai companies.
COSO suggests the following:
1. Build a solid control environment: Top management needs to establish sound integrity and ethical values for financial reporting and make them well understood throughout the organisation.
2. Know your risk: The financial reporting objective needs to be established and understood in order that risk to reliable financial reporting can be identified, assessed and managed. In addition, fraud risk should also be considered when identifying risk to achievement of the financial reporting objective.
3. Set up appropriate controls: Control activities need to be implemented to reduce risk to financial reporting objectives. These control activities cover both manual controls and information technology control.
4. Communicate the right information at the right time: Information on financial reporting and internal control is identified, captured and distributed in a form and timeframe that supports the achievement of financial reporting goals.
5. Monitor the effectiveness of your controls: Once in a while internal controls should also be examined by the internal auditor or by people performing such controls. Actions to improve controls should be implemented where necessary. Control deficiencies should be communicated to the relevant people in a timely manner, and to management and the board as appropriate.
Is internal control the sole responsibility of the CEO and CFO?
Internal control is everyone's business. However, its success depends on a strong ''tone at the top'' from the board, the audit committee, the CEO and the CFO. The board provides governance, guidance, and takes responsibility in overseeing financial reporting and related internal control. Ownership of the internal control system belongs to the CEO.
Senior management is also responsible for establishing more specific internal control policies and procedures to personnel responsible for the unit's functions, especially the CFO who is directly in charge of the company's financial and accounting function. Both the CEO and CFO will be the main drivers for enhancing the quality of financial reporting. Therefore, to ensure the company's financial reporting is reliable, the CEO and CFO need to understand the internal control, the financial reporting process, and thus be able to determine whether each component is in place and operating as intended.The Federation of Accounting Professions (FAP) will hold a seminar ''CEOs & CFOs for Quality Financial Reporting'' on May 29 from 8:30 am to noon at the Banyan Tree Hotel. Speakers include leaders of the Federation of Accounting Professions, the SEC, SET, the Listed Companies Association, and the Thai Institute of Directors.
