Guidelines have been adopted for members of audit committees in all legal entities of special interest to the Republic of Croatia, as well as to all legal entities whose shares, business shares or founding rights are managed by CERP as legal representatives, in which the Republic of Croatia holds a majority share capital or in which it has most of the founding rights.

The purpose of these Guidelines is to more clearly define and strengthen the role and responsibility of audit committees in the Companies and to contribute to improving and raising the quality of work of audit committees in the Companies.

Members of the audit committee

In order for a member of the audit committee to meet the obligation to act with the attention of a good expert, he must have the knowledge and skills necessary to understand and judge all normal business events in the Company, especially in relation to financial reporting, internal and external audit, internal controls, risk management and other issues within the scope of the audit committee. The members of the audit committee are obliged to keep as a business secret everything they learn or heard from confidential reports and advice given in the Company.

The audit committee should be established as a supervisory board, which is functionally accountable to the supervisory board, and its composition should be such as to ensure that the audit committee has sufficient members, knowledge and skills and an adequate level of independence to perform its role effectively.

The role of the audit committee

The work of the audit committee is closely related to financial reporting, internal controls, risk management, compliance with legal regulations and relevant issues related to internal and external audit. The role of the audit committee in the process of supervision over financial reporting is, in essence, reduced to supporting the supervisory board in supervising the completeness and accuracy of the Company's financial statements. The audit committee should monitor the independence of the auditor and his/her involvement in other matters and inform the supervisory board of the outcome of the external audit and explain how the external audit contributed to the integrity of financial reporting and the role of the audit committee in this process.

Given that the work of the audit committee largely depends on the work of internal audit, the establishment of an effective internal audit in the Company is one of the prerequisites for successful performance of the role of the audit committee. Good cooperation between the audit committee and the external auditor is crucial for the successful fulfillment of the role of both the audit committee and the external auditor. Also, the roles, responsibilities and manner of work of internal audit should be regulated in detail by the internal audit ordinance or similar document.

Chairman of the audit committee

The chairman of the audit committee must be independent and should be appointed from among the independent members of the supervisory board. When electing the chairman of the audit committee, the following characteristics of potential candidates should be taken into account:

• independence
• expertise in accounting and/or auditing
• good organizational and managerial skills required to ensure the effective execution of the roles and responsibilities of the audit committee as a whole
• ability to objectively perceive facts and openness to
• different opinions and approaches
• the trust of the members of the audit committee
• successful communication and cooperation with the management and the supervisory board
• ability to present the views of the audit committee to the competent bodies of the Company in an argumentative manner
• understanding of the Company's operations and familiarity with current events in the Company
• the ability to set aside enough time to complete all tasks

The work of the audit committee

It is recommended that the supervisory board adopt rules of procedure for the work of the audit committee, which will regulate issues important for the manner of work of the audit committee. The audit committee, as a collective body, works in sessions. The number of meetings of the audit committee should be appropriate to the circumstances of the Company, taking into account that it is recommended that the audit committee meet at least once a quarter.

The audit committee may make decisions if the conditions determined by law or internal acts of the Company are met, and minutes are kept at all times during the session. The agenda and related materials must be prepared and submitted to the other members of the audit committee in advance, in order to enable the members of the audit committee to adequately prepare for the meetings. In order to fulfill its tasks, the audit committee must cooperate and regularly communicate with the management of the Company, and sometimes the audit committee must be involved in communication and cooperation with representatives of the State Audit Office. The audit committee should evaluate at least once a year its effectiveness, composition and work, as well as the work of individual members of the audit committee.

More information can be found on the official website Ministry of Physical Planning, Construction and State Property. Grant Thornton experts find adequate solutions in everyday business. Contact us with confidence!

Source: Ministry of Physical Planning, Construction and State Property