Report of the Board Audit Committee

Membership and Appointment

The Audit Committee appointed by and responsible to the Board of Directors of Citizens Development Business Finance PLC consists of four Non-Executive Directors all of whom are members of recognised professional accounting bodies and possess wide ranging financial, commercial and management experience. Two members of the Committee are Independent Non-Executive Directors, one of them being the Senior Director. The biographical details of the members of the Audit Committee, namely, Mr. D H J Gunawardena,
Mr. D A De Silva, Mr. S R Abeynayake and Mr. Razik Mohmmed, are set out in the Directors profiles section of the Annual Report. Mr. D H J Gunawardena was appointed as the Chairman of the Audit Committee.

Role of the Audit Committee

The main objective of the Audit Committee is to assist the Board of Directors in exercising its responsibilities towards its stakeholders. The Committee is empowered among other things, to ensure that adequate systems of internal control are in place, to see that sound corporate governance practices are upheld within the Company, to examine any matters relating to the financial affairs of the Company and ensure adherence to statutory and regulatory requirements.

The Terms of Reference of the Audit Committee are defined in the Audit Charter. During the year under review, the Terms of Reference were reviewed and amended to include further responsibilities particularly with regard to risk management processes and controls.

Meetings

The Audit Committee meets at least four times a year and on other occasions when the need arises. The quorum for a meeting of the Committee is two members. The Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, the Head of Internal Audit and other Executive Directors attend meetings of the Committee by standing invitation. The External Auditors also attend meetings whenever they are invited to be present. The Head of Internal Audit functions as the Secretary to the Audit Committee. The Committee Chairman reports regularly to the Board on relevant matters.

Four meetings were held during the period under review. At two of these meetings, the External Auditors were present and were represented by the engagement partner.

Financial Statements

The Committee reviewed the interim and year-end Financial Statements and obtained the approval of the Board, prior to their publication. The Committee considered reports from the External Auditors, KPMG, on the scope of the annual audit and later, with regard to its outcome. These reviews facilitated the Committee to monitor compliance with SLFRS/LKAS and the other related legislation and also to ensure the integrity of the information provided to the Company’s stakeholders.

Risk Management and Internal Control

The Committee reviewed the process by which CDB evaluated its control environment, its risk assessment process and the way in which significant business risks were managed. It also considered the Audit Department’s reports on the effectiveness of internal controls, significant frauds and any fraud that involved employees of the Company and took action to strengthen the internal controls where necessary.

External Audit

The Committee reviewed the services provided by the External Auditors, KPMG, to evaluate their independence and objectivity. It also reviewed and approved the scope of non-audit services provided by the External Auditors, to ensure that there was no impairment of independence.

The Management Letter issued by the External Auditors in respect of the financial year ended 31st March 2013 was considered by the Committee and corrective action is being pursued wherever such action is warranted.

Prior to commencement of the annual audit, the Committee discussed with the External Auditors, their audit plan, audit approach, and matters relating to the scope of the audit.

Internal Audit

The Committee engaged in the discussion and review of the internal audit plan for the year, along with its resource requirements. The Committee also reviewed selected audit reports covering various functions of the Company and followed up the implementation of audit recommendations confirmed by the Committee. The Information Systems Audit Plan for 2013/14 was also studied in detail and approved by the Committee.

Statutory and Regulatory Compliance

The Committee reviewed the procedures established by management for compliance with the requirements of the regulatory bodies. The compliance officer submitted a report to the Audit Committee on a quarterly basis, indicating the extent to which CDB was in compliance with mandatory statutory requirements. Due compliance with all requirements is monitored through this process.

Conclusion

Based on the review of reports submitted by the External and Internal Auditors, the information obtained by the Committee and having examined the adequacy and effectiveness of the internal controls which have been designed to provide a reasonable assurance to Directors that the assets of the Company are safeguarded, the Audit Committee is satisfied that the financial position of the Company is regularly monitored and that steps are being taken to continuously improve the control environment in which the Company operates.

The Audit Committee having considered the independence and performance of the External Auditors KPMG (Chartered Accountants) recommend that they be reappointed as the Company’s statutory auditors for the financial year ending 31st March 2015, subjected to the approval of shareholders at the forthcoming Annual General Meeting.

(Sgd.)
D H J Gunawardena
Chairman
Audit Committee

2nd June 2014

Colombo