Board’s audit committee plays key role in company audits
Audit committees are responsible for oversight of a company’s financial statements and evaluating the integrity of the financial statements. They also hire and oversee external auditors in order to assess the quality of the audit, as well as select or recommend the retention of the audit firm.
According to Cindy Fornelli, executive director of the Center for Audit Quality (CAQ), an audit assessment’s evaluation of an auditor should assess:
· the qualifications and performance of the auditor
· the quality and candor of the auditor’s communications with the audit committee and the company
· the auditor’s independence, objectivity and professional skepticism.
An audit assessment should consider the audit committee’s experience with the auditor during the current audit cycle via presentations, reports, dialogue during formal meetings, ad hoc meetings and sessions that do not include management. The audit committee should also take into account prior-year evaluations and get feedback about the auditor from management and company’s internal audit.
In general, audit assessments should be performed annually and audit committees should continuously evaluate an auditor’s performance throughout the audit process.
Audit assessments include an evaluation of the auditor’s skepticism in evaluating unusual transactions and responsiveness to issues. Informal assessments can be made based on private meetings between the audit committee chair and the lead audit partner. Audit committees may also employ group discussions rather than collect audit committee member comments separately, as well as formal committee meetings or conference calls. Committees also can request input from the audit firm itself on its performance through required or voluntary reporting as to how an audit firm’s management and operations support the performance of high-quality audits.
According to the 2016 Audit Committee Transparency Barometer, an annual report issued by the CAQ and Audit Analytics, the amount of information being made available to investors about audit committee oversight of the auditor continues to increase. The report cites ‘double-digit growth since 2014 in the percentage of S&P 500 companies disclosing information on key areas of external auditor oversight, including auditor appointment and audit partner rotation.’
‘Audit committees play important roles in enhancing audit quality and representing investor interests, so it is encouraging to observe how public companies continue to shed more light on audit committee practices,’ says Fornelli. The report ‘can be a resource for companies and audit committees looking to enhance how they communicate to investors, regulators and others.’