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FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT
2015
Internal Audit Function
The internal audit function, which is outsourced to an independent professional firm, namely KPMG Management & Risk
Consulting Sdn Bhd, adopts the International Professional Practices Framework (“IPPF”) in carrying out internal audit of
companies in the Group. The IPPF encapsulates, amongst others, the attribute and performance standards for internal
auditing promulgated by the Institute of Internal Auditors, a recognized global professional body for internal auditors. This
accords with Commentaries of Recommendation 6.2 of the MCCG 2012, which specify that
“internal auditors should carry
out their functions according to the standards set by recognized professional bodies”
.
For the financial year ended 31 December 2015, the internal audit function conducted an assessment of the Group’s
system of internal control and reported its observations, including Management’s response and action plans thereto,
directly to the Audit Committee. The internal audit function also followed up and reported to the Audit Committee the status
of implementation by Management on the recommendations highlighted in its previous internal audit reports. 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 was prepared based largely on the risk priority of the Group’s geographical segments and their
specific risk profiles – in essence, the internal audit function deployed a risk-based approach in identifying areas to be
covered. In view of the various operational sites and locations spread across the ASEAN region, the approach for internal
audit is such that over a prescribed period, key locations would be identified for internal audit coverage based on 2 cycles
per financial year under review.
For the financial year ended 31 December 2015, significant business units in Singapore and Indonesia were selected for
internal audit with the Audit Committee’s concurrence, whilst a follow-up internal audit was conducted for business units
that were previously assessed. The companies in the Group and areas covered by the internal audit function for the financial
year under review and up to the date of this Statement are as follows:
Name of subsidiary
Processes covered by internal audit addressing the key business risks therein
Frontken (Singapore) Pte Ltd
•
Revenue management
•
Expenses management (including payroll management)
•
Fixed assets management
PT Frontken Indonesia
•
Revenue management
•
Expenses management (including payroll management)
•
Fixed assets management
Detailed internal audit programmes were developed 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, both for the current internal audit as well
as follow-up, 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 2015, 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 RM90,000 (2014: RM94,000).
The Group’s external auditors, in the course of their statutory audit of the Group’s financial statements for the year ended
31 December 2015, carried out a review of the Group’s system of internal control to the extent of their planned reliance as
laid out in their audit plan. Any significant weaknesses identified during the audit, together with the improvement measures
to strengthen internal controls, were reported 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 2015.
STATEMENT ON RISK MANAGEMENT
AND INTERNAL CONTROL
(cont’d)