The Securities and Exchange Commission (SEC) has proposed the amendment to rule 42 (5) that has to do with audit committee. If amended, the new rule will require every public company to put in place a mechanism for the annual performance evaluation of its Audit Committee and the individual members of such committees.
The performance evaluation of the Audit Committee and the individual members shall be used as part of the criteria for determining eligibility for annual re-election.
The performance evaluation system would include criteria and key performance indicators and targets for the Audit Committee as well as for the individual members of such committee. Also, the performance evaluation of the Audit Committee and the individual members shall be independent, according to SEC.
“Any public company that violates any provision of these Rules and Regulations shall be liable to a penalty of not less than N100,000 and a further sum of not more than N5,000 for every day of default,” SEC stated.
The amendments to the rule also provide that a member of the Audit Committee of a public company shall meet the following conditions: Independence – an independent audit committee member is a member who is not a substantial shareholder of the company, that is, one whose shareholding directly or indirectly, does not exceed 0.1 percent of the company’s paid up capital; is not a representative of a shareholder that has the ability to control or significantly influence management; has not been employed by the company or the group of which it currently forms part, or has served in any executive capacity in the company or group for the preceding three financial years; is not a member of the immediate family of an individual who is, or has been in any of the past three financial years, and employed by the company or the group in an executive capacity.
Also, member of the Audit Committee of a public company shall not be a professional advisor to the company or the group, other than in a capacity of a director; is not a significant supplier to or customer of the company or group; has no significant contractual relationship with the company or group and is free from any business or other relationship which could materially interfere with his/her capacity to act in an independent manner; and is not a partner or an executive of the company’s statutory audit firm, internal audit firm, legal or other consulting firm that has material association with the company and has not been a partner or an executive of any such firm for three financial years preceding his/her election.
It also requires that member of the Audit Committee of a public company to be free of any relationship with the company or its management that may impair, or appear to impair the member’s ability to make independent judgment; and must undergo successful annual performance evaluation that includes key performance indicators and targets as set by the public company.
Iheanyi Nwachukwu
