DIWA, WENCHIE R.

2012300542

FINAL EXAM
AUDITING THEORY

Submmitted to:
Prof. Jephte O. Munez, CPA
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Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542

Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542
CORPORATE GOVERNANCE
DMCI Holdings, Inc. (the Corporation) is committed in doing business in accordance
with the highest professional standards, business conduct and ethics and all applicable laws,
rules, and regulations in the Philippines. The Company, its directors, officers, and employees are
devoted to promote and adhere to the principles of good corporate governance by observing and
maintaining its core business principles of accountability, integrity, fairness, and transparency.

DEVELOPS AND EXECUTES A SOUND BUSINESS STRATEGY

The DMCI Holdings, Inc. have a clearly defined vision, mission and core values. They
have a well developed business strategy and have a strategy execution process that facilitates
effective performance management, and is attuned to the company's business environment,
management style and culture. They have its board continually engaged in discussions of
strategic business issues.

THE BOARD
The Board of Directors (the Board) is responsible to promote the long-term success of
the Corporation and to secure its sustained competitiveness consistent with its fiduciary
responsibility, in which it should exercise the best interest of the Corporation, its shareholders
and other stakeholders. The Board guarantees that the company is properly and effectively
managed and controlled. The Board should conduct itself with honesty and integrity in the
discharge of its duties, functions and responsibilities. The Boards main thrust is to
institutionalize corporate governance principles and best practices by transparency,
accountability, professionalism, diligence, and fairness. The Board is also expected to preserve
and enhance shareholder value. The roles of the Chairman and Chief Executive Officers is to
ensure independence and accountability.
The DMCI Holdings, Inc. have a board composed of directors of proven competence and
integrity. It is lead by a chairman who shall ensure that the board functions in an effective and
collegial manner. They have in place written manuals, guidelines and issuances that outline
procedures and processes. According to the guideline, it should have at least three (3) or thirty
percent (30%) of its directors, whichever is higher, as independent directors. However, DMCI
Holdings, Inc. (the Corporation) currently has 9-seat Board with two (2) independent directors.
The number of independent directors is in accordance with the requirements of the Securities

Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542
Regulation Code and in compliance with the Corporations Manual on Corporate Governance,
the Implementing Rules of the Securities Regulation Code, and SEC.

BOARD PERFORMANCE
Regular quarterly board meetings are scheduled after the end of each quarter, while
special board meetings are scheduled in between regular meetings as the need arises. In 2012,
the Board had eighteen (18) meetings. While in 2013, the Board had seventeen (17) meetings .
As per records of the minutes of the meetings of the Board, no Director has absented himself for
more than fifty percent (50%) from all meetings of the Board, during his incumbency or twelve
(12) month period during said incumbency.

BOARD COMMITTEES
The Board established three (3) Committees to improve the implementation of corporate
governance best practices. The Committees are tasked to adopt a system of internal checks and
balances. Each Committee has responsibilities to oversee the Board performance and proper
discharge of independent views over meetings.

NOMINATION AND ELECTION COMMITTEE

The Nomination and Election Committee (NEC) is composed of four members, one of
whom is an Independent Director. The NECs main role is to pre-screen and shortlist all
candidates nominated to become a member of the Board of Directors in accordance with the
qualifications and disqualifications set in the Corporations Manual on Corporate Governance
and in the Amended By-Laws. The NEC Chairman has consistently attended the Annual
Stockholders Meeting in the past three (3) years to give shareholders an opportunity to address
the Committee. The NEC has plans of formulating Executive Succession Plan Policy and a
Board evaluation performance.

COMPENSATION AND REMUNERATION COMMITTEE

The Compensation and Remuneration Committee (CRC) is composed of three (3)
members, one of whom is an Independent Director and two (2) of whom are Non-executive

Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542
Directors. The CRCs main thrust is to establish a formal and transparent procedure on directors
and executive officers remuneration and provide oversight over remuneration of senior
management and other key personnel ensuring that compensation is consistent with the
Corporations culture, strategy and control environment. The Chairman of the CRC has
consistently attended the Annual Stockholders Meeting in the past three (3) years. The CRC has
plans of developing remuneration policy for its directors and executive officers.

AUDIT COMMITTEE
The Audit Committee (AC) is composed of at least three (3) members, two (2) of whom
must be Independent Director and one (1) of whom shall be its head or Chairman. Each member
should have enough understanding about company's financial management systems and
environment. The Audit Committee works closely with the external and internal auditors to
check all financial reports against compliance with both internal and external management
handbook and accounting standards. The Audit Committee meetings are scheduled at appropriate
time to address matters on financial disclosures, audit reports and accounting and auditing
processes. The Chairman of the Audit Committee has consistently attended the Annual
Stockholders Meeting for the past three (3) years.
The Audit Committee will make recommendations to the Board of Directors regarding
items relating to financial and regulatory reporting and the system of internal controls following
the execution of the Committee's responsibilities as described herein. The Audit Committee
review and discuss with management and the external auditor the annual audited financial
statements, including discussion of material transactions with related parties, accounting policies,
as well as the external auditor's written communications to the Committee and to management.
They also report on and recommend to the Board of Directors the annual financial statements
and the external auditor's report on those financial statements, prior to Board approval and
dissemination of financial statements to shareholders and the public, ensuring the integrity of
disclosure controls and internal controls over financial reporting.

ENTERPRISE RISK MANAGEMENT

The Corporation has engaged the services of Sycip, Gorres, Velayo & Co. (SGV) to
establish the Enterprise Risk Management process that is designed to assist the Corporation and
its subsidiaries to focus on and manage its key risks. They will be also tasked to enhance the
Corporations ability as an organization to successfully implement an established risk

Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542
management process, by transferring knowledge through orientation, training, and coordination
with SGV. However, the company did not disclose sufficient information about its risk
management procedures and processes as well as the key risks the company is currently facing
including how these are being managed because the company is currently undertaking the ERM
Program Approach which comprises of modules of activities.
The Company has policies on financial risks as stated in its Annual Report (SEC Form
17-A). The main risks arising from the use of financial instruments are equity price risk, market
price risk, foreign currency risk, credit risk, liquidity risk and interest rate risk. The Groups
Board of Directors had reviewed and approved the policies for managing each of these risks
They have its board oversee the company's risk management function and have a formal risk
management policy that guides the company's risk management and compliance processes and
procedures.

INTERNAL AUDIT AND CONTROL

The Company has in place an independent Internal Audit function which shall be
performed by an Internal Auditor or a group of Internal Auditors, through which its Board, senior
management, and stockholders shall be provided with reasonable assurance that its key
organizational and procedural controls remain effective and appropriate, and are complied with.
The Companys Audit Committee performs oversight function to its internal audit. The internal
controls are reviewed on quarterly basis and annual audit under the supervision of the Audit
Committee for the directors criteria for assessing the effectiveness of the internal control system.
The Internal Auditor formulates the rules and procedures on financial reporting and
internal control. It has direct and unfettered access to the board of directors and the audit
committee.
The DMCI Holdings, Inc. established the internal audit function as a separate unit in the
company which would be overseen at the Board level and have a comprehensive enterprise-wide
compliance program that is annually reviewed. It institutionalize quality service programs for the
internal audit function. Also, they have in place a mechanism that allows employees, suppliers
and other stakeholders to raise valid issues. They have the Chief Executive Officer and Chief
Audit Executive who will attest in writing, at least annually, that a sound internal audit, control
and compliance system is in place and working effectively.

Final Project in Auditing Theory

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2012300542
DOES NOT ENGAGE IN ABUSIVE RELATED-PARTY TRANSACTIONS AND
INSIDER TRADING
The company have developed and disclosed a policy governing the companys
transactions with related parties. They clearly define the thresholds for disclosure and approval
for RPTs and categorize such transactions according to those that are considered de minimis or
transactions that need not be reported or announced, those that need to be disclosed, and those
that need prior shareholder approval. The aggregate amount of RPT within any twelve (12)
month period should be considered for purposes of applying the thresholds for disclosure and
approval. There is a voting system whereby a majority of non-related party shareholders approve
specific types of related party transactions in shareholders meetings. The company also have a
clear policy in dealing with material non-public information by company insiders and there is a
practice of full and timely disclosure to shareholders of all material transactions with affiliates of
the controlling shareholders, directors or management.

CODE OF BUSINESS CONDUCT AND ETHICS

The Corporation has established and adopted its Code of Business Conduct and Ethics to
ensure full compliance of directors, officers, and employees with the Corporations Manual on
Corporate Governance and to guide individual behaviour and decision making, clarify
responsibilities, and inform other stakeholders on the conduct expected from company personnel.
This Code of Business Conduct and Ethics sets forth the Companys business principles and
values which shall guide and govern all business relationships of the Company, its directors,
officers and employees in carrying out their duties and responsibilities effectively.
Also, the company does not seek exemption from the application of a law, rule or
regulation especially when it refers to a corporate governance issue. Should it do so, it has to
disclose the reason for such action as well present the specific steps being taken to finally
comply with the applicable law, rule or regulation. They have clear and stringent policies and
procedures on curbing and penalizing company or employee involvement in offering, paying and
receiving bribes, and they also respect intellectual property rights.

ROLE OF STAKEHOLDERS
The Company conducts business in accordance with the law, the charter of the Company,
and a high standard of commercial morality. The company have a separate corporate
responsibility (CR) report/section or sustainability report/section. It features the CSR projects
and programs of its subsidiaries as a major section in the Companys annual report.
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Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542
The policies on health, safety and welfare of employees are on per subsidiary basis. The
parent company and its subsidiaries provide health and life insurance benefits to its employees.
The subsidiaries have been ISO certified on their respective areas of concerns specifically on
health and safety. The DCMI Holdings, Inc. established and disclosed a clear policy statement
that articulates the companys recognition and protection of the rights and interests of key
stakeholders specifically its employees, suppliers & customers, creditors, as well the community,
environment and other key stakeholder groups.
There is no formal policy of training of employees. If necessary, funds shall be allocated
by the Treasurer or its equivalent officer for the purpose of conducting an orientation program or
workshop. In the Annual Corporate Governance Report in 2012, there had been nine (9)
trainings/seminars attended by key officers and employees while in 2013, there had been thirteen
(13) trainings/seminars. The Company has also in-house training through DM Consunji
Technical Training Center which provides quality training exclusive to the DMC Group of
Companies such as Leadership, Supervisory Development, Problem Solving and Decision
Making and Foremanship Training among others.
Also, the Company has a Multi-Employer Retirement Trust Fund which provides
retirement, death, disability and severance benefits to all eligible employees of the Company and
its subsidiaries. The companys procedures for handling complaints by employees concerning
illegal (including corruption) and unethical behaviour are based on subsidiary level. Such cases
on illegal and misbehaviour are being handled by their respective Human Resources and Legal
counsel teams. They have in place a merit-based performance incentive mechanism such as an
employee stock option plan (ESOP) or any such scheme that awards and incentivizes employees,
at the same time aligns their interests with those of the shareholders.

TRANSPARENCY AND DISCLOSURES

The Corporation has consistently been informing the investing public of its material
information through structured and unstructured timely disclosures to the Philippine Stock
Exchange and the Securities and Exchange Commission. They have disclosed the existence,
justification, and details on shareholders agreements, voting trust agreements, confidentiality
agreements, and such other agreements that may impact on the control, ownership, and strategic
direction of the company. The Corporation, through its investor relations group, is constantly in
communication with shareholders and investors in an appropriate time. The Group engages in
conference calls, or meets with institutional and prospective investors, and analysts.
Transactions entered into by the Group with related parties are at arms length basis and
have terms similar to the transactions entered into by the company with third parties. The
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Final Project in Auditing Theory

DIWA, WENCHIE R.
2012300542
Company formulated policies and procedures that would ensure the integrity and transparency of
related party transactions between and among the corporation and its parent company, joint
ventures, subsidiaries, associates, affiliates, major stockholders, officers and directors, including
their spouses, children and dependent siblings and parents, and of interlocking director
relationships by members of the Board.

RIGHTS OF STOCKHOLDERS
In accordance with the SRC Rules, at least fifteen (15) business days the information
statements should be distributed to the stockholders. During the year 2012, the Company sent
before the Annual Meeting the Notice of Meeting and Information Statements eighteen (18)
business days before the stockholders' meeting date of July 25, 2012; and July 31, 2013 in the
year 2013.
The company also allows shareholders to call a special shareholders meeting, submit a
proposal for consideration at the ASM (Annual Stockholders Meeting) or the special meeting,
and ensure the attendance of the external auditor and other relevant individuals to answer
shareholder questions in such meetings. They ensure that all relevant questions during the ASM
are answered. In the last ASM, the Vice-Chairman of the Board opened the floor for any
questions that the stockholders may have in relation to the Presidents Report. Several
stockholders congratulated Mr. Consunji on the impressive performance of the Company for
2011 and 2012. Thereafter, there being no other questions from the floor, upon motion made and
duly seconded, the Presidents report was approved by the majority of the outstanding capital
stock.
The Board of Directors appointed the External Legal Counsel and Transfer Agent to be
Committee of Inspectors to validate votes during Annual Stockholders Meeting. The companys
common shares adopts the principle of "one share, one vote" policy. They ensure that all
shareholders of the same class are treated equally with respect to voting rights, subscription
rights and transfer rights and have an effective, secure and efficient voting system. They have
effective shareholder voting mechanisms such as supermajority or majority of minority
requirements to protect minority shareholders against actions of controlling shareholders.
According to the guideline, the company should have at least thirty percent (30%) public
float to increase liquidity in the market. But the Company's public float as of December 31, 2013
is 27.80%. This, however, is compliant with the PSE's Rule on Minimum Public Ownership of
no less than 10%. Also, the company does not have a dividend policy. But the Company is
committed to its shareholders by declaring cash dividends based on its retained earnings, cash
flow, CAPEX projections and good market conditions.
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Final Project in Auditing Theory