34 / 144
33
Frontken Corporation Berhad (651020-T)
ANNUAL REPORT
2016
Internal Audit Function
During the financial year, the internal audit function was outsourced to an independent professional firm, namely BDO
Governance Advisory Sdn Bhd in place of the outgoing service provider, i.e. KPMG Management & Risk Consulting Sdn Bhd.
The appointment of the new service provider followed an assessment of its suitability and capability by the Audit Committee.
The internal audit function conducted an assessment of the Group’s system of internal control, focusing on selected
significant business units and reported its observations, including Management’s response and action plans thereto, directly
to the Audit Committee. The internal audit function was also tasked to conduct a follow-up on the status of implementation
by Management on the recommendations highlighted, as deemed relevant.
The Audit Committee took note of the issues
raised and questions were posed to Management on the timeliness of measures to address the concerns as reported.
The internal audit plan for the financial year was prepared based largely on the Group’s financial information and the relative
risks of the business units to the achievement of the Group’s objectives. The internal audit function adopted a risk-based and
process life cycle approach in identifying auditable entities within the Group as well as the auditable areas. For the financial
year ended 31 December 2016, the following 2 significant business units in Malaysia, together with the identified processes,
were selected for internal audit with the Audit Committee’s concurrence:-
Name of business unit
Processes covered by internal audit addressing the key business risks therein
Frontken Malaysia Sdn Bhd (Kulim Branch)
•
Sales to receipt cycle (including credit control)
•
Procure to pay cycle (including expenses management)
•
Fixed assets management cycle (including maintenance and
spare part management)
Frontken (Johor) Sdn Bhd
•
Sales to receipt cycle (including credit control)
•
Procure to pay cycle (including expenses management)
•
Fixed assets management cycle (including maintenance and
spare part management)
Detailed internal audit tests were carried out by the internal audit function to assess the adequacy and operating effectiveness
of the Group’s system of internal controls in achieving business objectives. Transactions and activities were selected
for testing on a sample basis. Internal audit observations on systems weakness and areas for improvement, including
recommended mitigating measures to address the concerns raised, were included in internal audit reports presented to the
Audit Committee. Further details of the internal audit function and its activities are provided in the Audit Committee Report
included in this Annual Report.
For the financial year ended 31 December 2016, the Audit Committee reviewed the work of the internal audit function, its
observations and recommendations in order to obtain assurance on the adequacy and effectiveness of the Group’s risk
management and internal control system. The total cost incurred for the outsourced internal audit function for the financial
year under review amounted to approximately RM115,000 (2015: RM90,000).
The external auditors, in the course of their statutory audit of the Group’s financial statements, reviewed the Group’s system
of internal control to the extent of their planned reliance as laid out in their audit plan. Any significant deficiencies in internal
controls identified during the audit, together with the improvement measures to strengthen internal controls, were reported
in writing to the Audit Committee.
In assisting the Board to assess the adequacy and operating effectiveness of the Group’s risk management and internal
control system, the Audit Committee reviewed the observations raised by the internal and external auditors, as well as
actions taken by Management to address the areas of concern for the financial year ended 31 December 2016. The Audit
Committee reported to the Board the outcome of its engagement with the internal and external auditors concerning the
adequacy and operating effectiveness of the Group’s system of risk management and internal control.
Statement On Risk Management
And Internal Control
(cont’d)