Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
10. Corporate Governance
External auditors
Most countries require an independent audit of company books by a qualified
audit firm. A typical board has an audit or finance committee comprising three or
four board members; the lead board member has accounting or finance experience.
Usually, this committee selects (or recommends to the full board) an external
audit firm based on the firm’s independence, experience, and reputation for
quality and thoroughness. The committee works with the firm to audit company
books and financial transactions.
External auditors are not corporation employees and may not be on-site continuously
during the year. Typically, external auditors are legally responsible, and therefore
liable, for their professional opinion on company financial statement accuracy, and
any material errors or misstatements. External auditor staff must have qualifications
recognized by local accounting standards boards—certified public accountants
(CPAs), or chartered Accountants (CAs); staff must be unbiased and without conflicts
of interest, such as a financial stake in the company being audited. External auditors
not only certify company financial statements but also review and ensure that company
information systems and internal accounting practices meet national and international
standards, and provide their opinion on the company’s annual report. The
range of non-audit services that external auditors can provide is now severely limited
by most accounting standards.
Internal auditors
Most railway corporations have internal auditors on staff. Typically, internal
audit departments report directly to the board finance or audit committee, have
an administrative reporting relationship to the CEO, and are independent of
company accounting departments. Internal auditors provide continuous oversight
for company accounting practices and ensure compliance with national and
international accounting practices. Although internal audit departments are unregulated
and staff are not required to qualify as CPAs or CAs, most staff meet
standards set by professional groups for internal auditors.
The board should take special interest in the internal audit department and scrutinize
any staff changes made by the CEO.
Succession planning, compensation, and organization
A crucial role of the board is to hire and replace the CEO; the board may also be
involved in recruiting top company officers, particularly those required by the
company charter and legal regulations, such as treasurer, or secretary. The company
may establish a special executive search committee to replace the CEO and
top corporate officers, or a succession planning or compensation committee can
handle these tasks. However, the board must ensure that CEOs help select any
officers reporting to the CEO.
The board should have a compensation committee that supervises overall compensation,
incentive structures, pensions, and bonuses. The board must ensure
that compensation for the CEO and top officers is competitive and any incentives
are aligned with company strategic directions. Although the board must establish
compensation structures, it must avoid encroaching on management decision
making.
The World Bank Page 160