SBF’s audit committee would need to receive the internal audit report before the board for the following reasons:
Most importantly, the primary reason why the audit committee receives the internal audit report first is so the audit committee
can see the quality (or not) of the bank’s internal systems. The reason SBF’s audit committee would not want the internal
audit report to go to the main board first is to allow them to assess the robustness of internal systems without having
comments from the board to deal with at the same time. Comments from SBF’s board might try to put critical reports in a
positive light, which would be unfair to the shareholders. Shareholders have a right to know about anything which affects the
long-term value of their shares, and any limitation on this right is not what they (the shareholders) would want.
SBF’s audit committee would also need to see the true state of external compliance within the organisation, including
compliance with the reporting, capital adequacy and other statutory provisions, as imposed by the regulator, the national
parliament, and the stock exchange. This information is important for the shareholders and therefore, as the representatives
of the shareholders, the audit committee must review it, and report on it, as necessary to the shareholders. This information
may affect how shareholders value and price SBF, and accordingly, shareholders should be informed as necessary, without
the board trying to influence the findings of such reports to protect themselves.
Additionally, SBF’s audit committee needs to consider internal compliance issues including internal requirements relating to
SBF’s asset portfolio. The robustness of SBF’s asset portfolio is very important to shareholders because it can affect the future
income shareholders are likely to receive. A key area of concern for SBF’s audit committee is what the internal audit report
says about the bank’s overall approach to internal compliance issues. If the internal audit report shows any problems with
internal compliance, then that would be a negative signal to shareholders. The audit committee might decide to probe further
and to challenge the executive directors on the laxity of the internal processes.