Focus on the audit committee Thursday, January 7, 2016
St. John s Vancouver Edmonton Saskatoon Calgary Winnipeg Regina Fredericton Moncton Halifax Montreal Saint John Ottawa Toronto Kitchener Burlington Niagara Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 1
Agenda Panel discussion The regulator s perspective and expectations Corporate reporting Operational risk Audit quality Questions and answers Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 2
Panel Don Wilkinson Leader, Canadian Centre for Corporate Governance, Deloitte Cameron McInnis Chief Accountant, Ontario Securities Commission John Bowey Chairman, Economical Insurance, Chair, Board of governors, Wilfrid Laurier University David McGraw Senior Vice-President and Chief Financial Officer, Ontario Teachers Pension Plan (OTPP) Eileen Mercier Chair of the Canadian Payments Association, former Chair of the OTPP Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 3
Don Wilkinson Leader, Canadian Centre for Corporate Governance Deloitte Deloitte LLP and affiliated entities.
Cameron McInnis Chief Accountant Ontario Securities Commission Deloitte LLP and affiliated entities.
Recent OSC regulatory initiatives Disclosure of women on boards and in senior management Crowd funding and offering memorandum exemption Whistle blower program Venture Issuer regime in effect Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 6
Financial reporting topics of interest Fair Value disclosures REIT sector observations Impairment Operating segments Business combinations goodwill vs intangibles Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 7
REIT Fair Value example Poor disclosure Investment properties are measured at fair value, determined based on available market evidence. If market evidence is not available, ABC REIT uses alternative methods. Investment properties are internally and externally valued periodically. Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 8
REIT Fair Value example - Improved disclosure ABC REIT s internal valuation team consists of knowledgeable individuals who have recent experience in fair value techniques for investment properties. The team reports directly to the Executive Vice President of Asset Management and the internal valuation team s valuation processes and results are reviewed quarterly by management. A leading independent national real estate appraisal firm with representation and expertise across Canada provides appraisals on approximately 40% of its portfolio by value annually. Properties are rotated annually to ensure that approximately 80% of portfolio by value is appraised externally over a 2-year period. On a quarterly basis, for properties that are not valued externally, the appraisals are updated by the internal valuation team for current leasing and market assumptions,. The internal valuation team also verifies all major inputs to the independent valuation report Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 9
John Bowey Chairman Economical Insurance Deloitte LLP and affiliated entities.
Getting the story across Balancing value creation and value realization Refocusing (and maybe shortening!) the MD&A Putting discipline into non-gaap measures Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 11
Discussion question What can the audit committee do to improve the quality of corporate reporting in the next year and over the next 3 years? Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 12
David McGraw Senior Vice-President and Chief Financial Officer Ontario Teachers Pension Plan Deloitte LLP and affiliated entities.
Operational risk on the radar of audit committees Three lines of defense Drive off an operational risk alignment framework Hot topics: Cybersecurity Outsourcing Deloitte 2015 LLP Ontario and affiliated Teachers entities. Pension Plan The Directors' Series Beyond compliance 14
Operational risk governance 3 lines of defense 1 st line of defense: Risk owner (Business operations) An established risk & control environment 2 nd line of defense: Oversight functions (Finance, HR, Risk, Compliance) Strategic management & policy and procedures setting Functional oversight Risk and control Risk and control Risk and control 3 rd line of defense: Independent assurance (Audit services) Provide independent challenge and assurance Board & Audit Committee Deloitte 2015 LLP Ontario and affiliated Teachers entities. Pension Plan The Directors' Series Beyond compliance 15
Teachers alignment framework Risk Partners: Enterprise & operational risk management; Internal Controls (ICFR); Compliance Enterprise Operations: Process excellence, Project management / Change management; Strategic planning & business management Assurance Provider: Audit services Planning Assurance provider Annual planning Enterprise operations Risk partners Execution 1. Single function executes work 2. Coordination of functions to execute work (2 or more) Enterprise operations Risk partner Assurance provider Leveraging each other s work Deloitte 2015 LLP Ontario and affiliated Teachers entities. Pension Plan The Directors' Series Beyond compliance 16
Teachers operational risk management framework Enterprise Risk Investment Governance Operational Strategic Reputational Operational Risk Management Set risk appetite Identify Measure Monitor / Control Report Governance, Oversight & Escalation Operations Committee Enterprise Risk Committee Operational risks in the spotlight Legal & Compliance Information (Technology) People Change Management Internal / External Fraud Financial & Management Reporting Outsourcing Deloitte 2015 LLP Ontario and affiliated Teachers entities. Pension Plan The Directors' Series Beyond compliance 17
Eileen Mercier Chair Canadian Payments Association Deloitte LLP and affiliated entities.
Audit Quality - Considerations for the audit Committee External auditor reviews Annual Comprehensive (every five years) Audit Quality Indicators - How to choose A new (longer) audit report - pros and cons Cure for what? Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 19
Discussion question Will comprehensive and other quality reviews lead to more frequent audit firm turnover? Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 20
Deloitte LLP and affiliated entities. Questions?
Let's talk corporate governance Join us on our Corporate Governance Forum Linkedln page where we will: Share insights that support board directors with their ro les and responsibilities Dive deeper into t he topics covered at our Directors' Series Have subject matter experts avai lable to address your corporate governance concerns Find out what matters most and solutions that support your board's needs. Deloitte LLP and affiliated entities. The Directors' Series Beyond compliance 22
Upcoming session Taking the long term view around the board table: The challenge of getting there Thursday, April 7, 2016
THANK YOU FOR ATTENDING www.deloitte.com/ca/directorsseries directorsseries@deloitte.ca To access additional resources, and to view replays of this session, please visit our Centre for Corporate Governance: http://www.corpgov.deloitte.ca/enca/pages/insights/directorsseries/main.aspx Deloitte LLP and affiliated entities.
If you would like to discuss any of the topics addressed during today s session, or would like any additional information, please contact the Deloitte professional in your region: Vancouver Olin Anton 604-640-3006 oanton@deloitte.ca Regina Cathy Warner 306-565-5230 cwarner@deloitte.ca Niagara Pam Lilley 905-323-6010 plilley@deloitte.ca Montreal Eddie Leschiutta 514-393-5132 eleschiutta@deloitte.ca St. John s Brian Groves 709-758-5225 bgroves@deloitte.ca Calgary Sippy Chhina 403-503-1314 schhina@deloitte.ca Winnipeg Haig Vanlian 204-944-3609 hvanlian@deloitte.ca Toronto Don Wilkinson 416-601-6263 dowilkinson@deloitte.ca Sherbrooke Annie Lessard 819-823-3275 annlessard@deloitte.ca Edmonton Paul Borrett 780-421-3655 paborrett@deloitte.ca Kitchener Jim Pryce 519-650-7779 jpryce@deloitte.ca Ryan Brain 416-643-8210 rbrain@deloitte.ca Saint John Geoffrey Cochrane 506-663-6696 gcochrane@deloitte.ca Saskatoon Andrew Coutts 306-343-4466 ancoutts@deloitte.ca Burlington Reno Serrani 905-336-4158 rserrani@deloitte.ca Ottawa Anne-Marie Ethier 613-751-5245 aethier@deloitte.ca Halifax Mathew Harris 902-721-5696 mathharris@deloitte.ca Deloitte LLP and affiliated entities.