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Internal Audit Charter

This Charter sets out the purpose, authority, independence and responsibility of Internal Audit
as approved by Senior Management and accepted by the Board and Audit Committee.

Outline for this Internal Audit Charter is as follows:

a. Purpose
b. Authority
c. Responsibility
d. Scope of Work
e. Independence and Objectivity

The following are also included in the Charter:

f. Management response
g. Liaison with external auditors
h. Audit Standards
i. Audit Conduct
j. Amendment to Charter

This Charter is consistent with and conforms to the professional standards and guidance
provided by the Institute of Internal Auditors (IIA).

A. Purpose

Internal Auditing is an independent appraisal function established within Philippine Seven
Corporation (PSC) to examine and evaluate its activities as a service to the organization. The
primary objective of the Internal Audit is to assist the Board, Audit Committee and PSC
Management in the discharge of their oversight, management and operating responsibilities.
Internal Audit will furnish them with analyses, recommendations, counsel, and information
concerning the activities reviewed to add value and improve the organizations operations.

Internal Audit is an integral part of the company and plays an important role in the management
control system by measuring and evaluating the controls, assessing the efficiency and
effectiveness of internal control that aims to fulfill the business objectives of the organization.

B. Authority

Internal Audit is authorized with full and unrestricted access to all personnel, records,
properties, and other information sources required to perform audits.
Internal Audit is free to appraise all plans, policies, procedures and activities.
Internal Audit has no direct authority to make operating decisions to require anyone in
operations to take action or to implement its recommendations.
Internal Audit can obtain assistance of specialists or professionals when considered as
necessary from within or outside PSC.

Internal Audit can obtain the necessary assistance of personnel in various
divisions/section of PSC where they perform audits.
The Internal Audit Manager has the authority to audit the accounts of all organizations
required to submit financial statements to PSC.

C. Responsibility

Internal Audit shall evaluate the systems of internal control and provide assurance on the quality
of performance of assigned responsibilities with respect to all operations of the PSC, and shall:

Review the reliability and integrity of financial and operating information and the means
used to identify, measure, classify, and report such information;
Review the systems established to ensure compliance with those policies, plans,
procedures, laws, and regulations that could have a significant impact on operations and
Review the means of safeguarding assets, the measures taken to ensure safe conduct
of operations and verify the existence of assets;
Appraise the economy and efficiency with which resources are employed;
Review operations to ascertain whether results are consistent with established
objectives and goals and whether the activities are being implemented as planned;
Review compliance with the guidelines for ethical business conduct and see that the
highest standards of personal and performance are met.
Review business processes, identify risks and exposures that may affect the

Internal Auditors shall:

Follow the guidelines and methodology given in the Internal Audit Manual
Exercise due professional care in carrying out audit assignments.
Maintain integrity and objectivity
Follow up recommendations to make sure that effective remedial action is taken.

Internal Audit Section Manager shall:

Submit to the Audit Committee for approval the annual plan for the audit workload
program, which shall be based on risk analysis and identify individual audits to be
performed during the year.
Implement the approved annual audit plan, including as appropriate, any special tasks or
projects requested by the Audit Committee and Management.
Maintain requisite professional audit staff strength with sufficient knowledge, skills,
experience and professional qualifications to meet the requirements of this Charter.
Issue periodic reports on a timely basis to the Audit Committee and Management,
summarizing results of audit activities.
Keep the Audit Committee informed of emerging trends and developments in internal
auditing practices and give recommendations for necessary revisions in Internal Audit
Charter and Internal Audit Manual.
Conducts in the investigation of significant suspected fraudulent activities and notify the
Audit Committee and Management of the results.
Ensure that Internal Audit complies with sound internal auditing principles and best
practices; seek guidance from the standards issued by the Institute of Internal Auditors.
Maintain and improve the controls of the Internal Audit areas.

Audit Committee shall:
Monitor the internal audit function to assure compliance with the requirements of the
Internal Audit Charter. The Audit Committee shall approve changes to and periodic
assessments of the Charter submitted by Internal Audit Manager.
Be available to Internal Audit to consider issues not specifically addressed by the
On a quarterly basis, or at the request of the Audit Committee, meet with the Internal
Audit Manager to discuss current audits, the status of managements resolution of audit
findings, and other significant issues concerning Internal Audit.

D. Scope of Work

The general scope of audit coverage is enterprise wide and no function, activity or unit of PSC
or a related organization is exempt from audit and review. No officer or staff member may
interfere with or prohibit Internal Audit from examining any PSC or related organizations record
or interviewing any employee that the auditors believe is necessary to carry out their duties.

Consultancy engagements may be performed by Internal Audit. To ensure objectivity and
independence, ownership and responsibility of the process shall remain with Management.

Special Audit Projects

The Chairman of the Board, Chairman of the Audit Committee, or President may
authorize special audit projects not specifically identified in the approved annual audit
plan. The Internal Audit Manager shall notify the Audit Committee of such special audit
The Internal Audit Manager will advise the requestor of the status of the special audit
project while in progress and will forward the results of such project to the requestor for
review before it is issued. The final special audit project report will be issued to the
Board and the Audit Committee.

E. Independence and Objectivity

Internal Audit shall be free of all operational and management responsibilities that would impair
the ability to make independent reviews of all aspects of the PSCs operations.

To maintain objectivity, Internal Audit is not involved in day-to-day control procedures. Instead,
each business unit is responsible for its own internal control and efficiency.

Internal Auditors report functionally to the Audit Committee and reports administratively
to the President.
Internal Audit shall be independent from line management and have neither direct
authority over, nor responsibility, for any of the activities reviewed
Internally recruited auditors shall not audit activities or functions they performed in the
past two years
Internal auditors shall not develop and install procedures, prepare records, make
management decisions or engage in any other activity that could be reasonably
construed to compromise their independence or impair their objectivity.
Final implementation of recommendations or accepting the risk of not implementing the
recommendations is the responsibility of management.

F. Management Response

The respective Division Head of the audited operating unit is responsible for deciding the
appropriate action to be taken in response to reported issues/control weaknesses and
recommendations. He will determine within 30 days from receipt of the audit report on
the actions steps to be taken. Management decides to assume, manage and own the
risk. Internal audit shall inform the Audit Committee of managements decision on all
significant issues, control weaknesses and recommendations.

Internal Audit shall add the management responses to the body of the report, and sign
the final report. If management declines to respond to the report in a timely manner
(within 30 days upon receipt of the audit report), the report may be issued without
managements response. The report will be issued to the President and to the PSC

Division Heads or Section Heads are responsible for quarterly updates to Internal Audit
concerning resolution of audit issues.

G. Liaison with external auditors

Internal and external audit activities shall be coordinated to ensure adequate audit coverage
and to minimize duplication of effort.

H. Audit Standards

All internal audit activities shall be conducted in accordance with the companys policies and

Internal Audit shall conduct activities in a manner that is consistent with the most recent
edition of:

IIAs International Standards for the Professional Practice of Internal Auditing,
IIAs Code of Ethics;
IIAs Definition of Internal Auditing, wherein Internal auditing is an independent,
objective assurance and consulting activity designed to add value and improve an
organization's operations. It helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the effectiveness of risk
management, control, and governance processes.

I. Audit Conduct

Internal auditors shall be free from personal or external impairments to independence in
order that opinions, conclusions, and recommendations will be impartial and will be
viewed as impartial by knowledgeable third parties.
Internal auditors shall be prudent in the use of information acquired in the course of their
Activities of Internal Audit, including presentations to the Board, shall be in accordance
with the laws regarding confidentiality.
Internal Auditors shall not use any information obtained in an audit for any personal gain
nor in a manner which would be detrimental to the welfare of the PSC or its officers and

J. Amendment to Charter

The Charter shall be reviewed by the Internal Audit Manager every three years or when the
Institute of Internal Auditors (IIA) Standards are revised. This is to ensure that this Charter is
adequate and effective to enable the internal audit activity to accomplish its objectives. Results
of assessment shall be communicated and approved by the Audit Committee.

Internal Audit Manager/ February 11, 2011

Approved by:

Audit Committee/ February 11, 2011