MISC Integrated Annual Report 2020

BOARD AUDIT COMMITTEE REPORT The President/Group CEO is invited to attend the BAC meetings to facilitate the discussion, as well as to provide explanation on audit issues, risk management and financial matters as well as other matters within the BAC’s TOR. The Group Chief Audit Executive, GIA of PETRONAS or his representative and the Head, GIA of MISC are also invited to the BAC meetings, together with the relevant management personnel, to observe the proceedings and provide clarification on any relevant internal audit reports tabled to the BAC. The external auditors are invited to present their audit plan and audit results, Memorandum of Suggestions, and other relevant matters. BAC meetings together with the tentative agendas are scheduled in advance of any new financial year to allow the BAC members to plan ahead and incorporate the year’s meetings into their respective schedules. The agenda and meeting papers are distributed to the BAC members via a secured collaborative software, which eases the process of distribution of meeting papers and minimises leakage of sensitive information, as well as enabling the Directors to have access to the papers electronically, anytime and anywhere. All proceedings of the BAC meetings are duly recorded in the minutes and are properly kept by the Company Secretary. SUMMARY OF THE BAC’S WORK IN 2020 Appended below is a summary of the BAC’s work in 2020, in discharging its functions and duties: Financial Reporting • Reviewed the quarterly results for announcements to Bursa Securities, focusing on compliance with the Malaysian Financial Reporting Standards (MFRS), International Financial Reporting Standards (IFRS), the MMLR and other relevant regulatory requirements, before recommending the same for approval by the Board. • Reviewed the audited financial statements of the Company prior to submission to the Board for approval, upon being satisfied that the audited financial statements were drawn up in accordance with the MFRS, IFRS and provisions of the Companies Act 2016 in Malaysia. The abovementioned reviews were conducted together with the President/Group CEO and Vice President, Finance. Risk Management and Internal Controls • Reviewed and endorsed the Group Risk Profile for FY2020, including the Financial Risk Appetite for the Group. • Reviewed the adequacy and effectiveness of the Group’s Risk Management Framework and the on-going activities for identifying, evaluating, monitoring and mitigating risks. • Reviewed the proposed revision to MISC Berhad’s Limits of Authority Manual. • Reviewed the proposed adoption of PETRONAS Financial Policy by the Group. • Discussed the emerging risks updates for the Group. • Received and reviewed reports on key strategic and operational risk issues arising from quarterly Risk Management Committee (RMC) meetings, including identification of the risk appetite at the enterprise level and review of the mitigation plans to address the said risks. • Reviewed and endorsed the Group’s FY2020 Enterprise Risk Management Risk Register emanating from the Annual Planning Cycle and ensured that appropriate systems and processes are in place to effectively monitor and manage the identified risks. • Reviewed the SORMIC for inclusion in the Company’s 2019 Annual Report pursuant to Paragraph 15.23 and Part II, Practice Note 9 of the MMLR. • Recommended the establishment of a standalone BGRC to oversee MISC’s risk management framework and policies. Internal Audit • Reviewed internal audit reports issued by GIA based on the approved Annual Internal Audit Plan (AIAP) and ensured that appropriate agreed corrective actions are taken by the Management on the gaps in controls as identified by GIA. • Reviewed and approved GIA’s AIAP for the financial year ending 31 December 2021 as guided by the approved Enhanced Risk Based Internal Audit Framework of MISC in order to ensure adequacy of coverage on auditable entities and resources allocated. • Reviewed the responses and action plans provided by Management on the deliberated audit reports. • Reviewed the adequacy and effectiveness of agreed corrective actions taken by Management on all significant and secondary issues raised in the audit reports. • Reviewed the adequacy of resources and competencies of GIA’s staff to execute the audit plan. • Conducted half-yearly and yearly assessments on the performance of GIA. • Reviewed the minutes of meetings of the Board Audit and Risk Committee of Malaysia Marine and Heavy Engineering Holdings Berhad and minutes of meetings of the Audit and Risk Management Committee of AET Tanker Holdings Sdn. Bhd. for overview of the state of risk management and internal control systems of those subsidiaries. • Prior to BAC meetings, the Chairman of the BAC held private meetings and discussions with the Head and senior auditors of GIA on internal audit reports and any related matters. External Audit FY2020 Key Audit Matters (KAM) addressed by the BAC KAM Matters Considered BAC Comments Impairment of non-current assets • The Group’s assets under review included ships, right of use assets of in-chartered ships, offshore floating assets and other property, plant and equipment that had indication of impairment and goodwill. • Management has carried out impairment review on its assets based on value-in-use (VIU) analysis and market values by engaging independent ship valuers. The BAC concurred with Management’s assessment on the impairment of assets. Contingent liability from material litigation • The eventual outcome of claims are uncertain and the positions taken by Management are based on the application of material judgement and estimation. • Management has recorded provision for claims based on its assessment on the facts and circumstances available. The BAC concurred with Management’s assessment on the sufficiency of provision for claims. Recognition of revenue and cost for construction and marine projects • A significant portion of the Group’s revenues and profits are derived from long-term construction and marine projects which span more than one accounting period. • The Group uses the percentage-of-completion method in accounting for these long-term contracts. • Management applies significant judgement and estimation in determining the stage of physical completion in respect of heavy engineering and marine projects, and in estimating total project costs. The BAC concurred with Management’s assessment on the percentage of completion of projects and estimated total project costs. For more information on the KAM, please refer to the Independent Auditors’ Report on pages 466 to 473 of this Integrated Annual Report . • Reviewed the results and issues arising from the external auditors’ audit, including the KAM and the resolution of issues highlighted in their report to the BAC and Management’s responses thereto. • The BAC had two private meetings with the external auditors without the presence of Management during the year under review (i.e. on 13 February 2020 and 12 November 2020) to discuss any matters the external auditors may wish to present and to ensure that there were no restrictions in the scope and discharge of their audit activities. • Reviewed and approved the external auditors’ terms of engagement, audit plan, nature, scope and proposed fees for FY2020. • Reviewed and recommended the external auditors’ re-appointment to the Board to be proposed for shareholders’ approval at the last AGM. • Reviewed and endorsed the questionnaire and evaluation forms for the FY2020 Assessment of External Auditors. /////// Business Review / Leadership / Governance / Financial Statements / Additional Information / MISC Berhad / Integrated Annual Report 2020 9 284 MISC Berhad / Integrated Annual Report 2020 9 285 / Additional Information / Financial Statements / Governance / Leadership / Business Review /////// Section Section