What is money laundering?

The official definition is Money laundering is the attempt to conceal the origin money by making it look legitimate or 'clean'.

They included three stages
1) Placement which mean introduce illegal money into financial system

2) layering which mean create many layer to make sure the original source of fund could not traceable.

3) Integration which mean integrated those illegal fund into legal fund. 

Advantages and disadvantages of audit committees

The key advantage to an external auditor of having an audit committee is that such a committee of

independent non-executive directors provides the auditor with an independent point of reference other

than the executive directors of the company, in the event of disagreement arising.

Advantage

1. It will lead to increased confidence in the credibility and objectivity of financial reports.
3. By specialising in the problems of financial reporting and thus, to some extent, fulfilling the directors' responsibility in this area, it will allow the executive directors to devote their attention to management.
4. In cases where the interests of the company, the executive directors and the employees conflict, the audit committee might provide an impartial body for the auditors to consult.
5. The internal auditors will be able to report to the audit committee

Disadvantage

1. There may be difficulty selecting sufficient non-executive directors with the necessary competence in auditing matters for the committee to be really effective.
3. The establishment of such a formalised reporting procedure may dissuade the auditors from raising matters of judgement and limit them to reporting only on matters of fact.
4. Costs may be increased.

What are the rule and responsibilities of audit committee?

• To monitor the integrity of the financial statements of a company, and any formal announcements relating to the company's performance, reviewing significant financial reporting judgement contained in them
• To review the company's internal financial controls and, unless expressly addressed by a separate board risk committee composed of independent directors or by the board itself, to review the company's internal control and risk management systems
• To monitor and review the effectiveness of the company's internal audit function
• To make recommendations to the board, for it to put to shareholders for their approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor
• To review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements
• To develop and implement policy on the engagement of the external auditor to supply non audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm and to report to the board, identifying any matters in respect of which it considers that action and improvement is needed and making recommendations as to the steps to be taken
• To report to the Board how it has discharged its responsibilities, including:
• How it has addressed significant issues arising in the financial statements
• How it has assessed the effectiveness of the audit process
• How auditor objectivity and independence is safeguarded, where the auditor provides nonaudit services

What is audit committee?

The detail on corporate governance issues in this chapter is based on UK law and regulations. It is

included as an example of how law and regulations affect the auditor in this area.

International standard setting

International Standards on Auditing (ISAs) are produced by the International Auditing and Assurance
Standards Board (IAASB), a technical standing committee of the International Federation of Accountants (IFAC). You should also be familiar with the International Ethics Standards Board for Accountants (IESBA), another body of IFAC and the producer of the Code of Ethics.

What does forensic accounting mean?

Undertaking a financial investigation in response to a particular event, where the

findings of the investigation may be used as evidence in court or to otherwise help resolve disputes.

What does forensic investigation?

Carried out for civil or criminal cases. These can involve fraud or money
laundering.

What does forensic auditing?

The process of gathering, analysing and reporting on data, in a pre defined context, for the purpose of finding facts and/or evidence in the context of financial/legal disputes and/or irregularities and giving preventative advice in this area.

What does peer review, hot review, and cold review mean?

A peer review is a review of an audit file carried out by another partner in the assurance firm.

A hot review is a peer review carried out before the audit report is signed.

A cold review is a peer review carried out after the audit report is signed.

Firm and leadership responsibilities for quality within the firm

ISQC 1.13

Personnel within the firm responsible for establishing and maintaining the firm's system of quality control shall have an understanding of the entire text of this ISQC, including its application and other explanatory material, to understand its objective and to apply its requirements properly.

ISQC 1.34

The firm shall establish policies and procedures designed to provide it with reasonable assurance that:

- Appropriate consultation takes place on difficult or contentious matters

- Sufficient resources are available to enable appropriate consultation to take place

- The nature and scope of, and conclusions resulting from, such consultations are documented and are    agreed by both the individual seeking consultation and the individual consulted

- Conclusions resulting from consultations are implemented

Why ineffective audit committee lead to ineffective board of directors?

The most importance reason that lead to strong board of directors is they get all of the information on time and accurately.

That mean the system of flowing the information from operation to BOD need to be effective and strong. Good audit committee run this job effectively.

If the company have poor audit committee, the internal control of the company will be poor, financial information that flow to BOD might be incorrect or not on time.

Poor audit committee also leave internal and external auditor run carelessly. The independence of this two function might be breached. 

Why group of small companies should set up internal audit department?

I have worked in many local companies in Cambodia and some of those have audit department and some doesn't have.

Some of the group companies installed internal audit departments which is under the Board of Directors and some of them install internal audit department under finance departments.

It quite simple that the public limited companies are required to set up internal audit department under audit committee and board as  it is required by law and best practices. However, the limited company might not required.

How about limited companies which is not require by to set up internal audit department?

In some country, the limited companies are not required to set up internal audit department as set up internal audit department will cost a lot of money. In Cambodia, there are many limited companies which have their subsidiary and the major decision centralize at the group or  management team in the group. 

The group companies might have a lot of work to do and normally they do not have enough time to ensure that all the decision have been follow by its subsidiary. They know the process, policy, or decision that deploy by group companies does not implement unlit the problem raise, or the fraud occur.

To me, installing the small internal audit department which is report to controlling department that control the subsidiary is really importance and its might help the management team in the group company take nape peacefully. 

By theories, internal audit department should not report to finance, CEO or other operating department since its might be conflict with the operation. The reporting line should be BOD or audit committee. The main reason is because of BOD and audit committee is the one who control the executive department like CEO. If the reporting line is to CEO then there will be conflict.

For the group of limited companies do not required audit department, do not have BOD and audit committee, the best way to make sure all of the policies, procedure, operating effectiveness, and fraud that occur in subsidiary companies, small audit team at the group companies should be setting up.