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New Resource Can be Used by Audit Committees to Evaluate External Auditors

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Jun 2nd 2015
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A new resource released by the Audit Committee Collaboration on Tuesday is intended to help audit committees around the globe evaluate external auditors to assess the quality of the audit or to select or recommend the retention of the audit firm.

The Audit Committee Collaboration – which is comprised of the Association of Audit Committee Members Inc., Center for Audit Quality, Independent Directors Council, National Association of Corporate Directors, NYSE Governance Services, and the Tapestry Networks – said the resource, External Auditor Assessment Tool: A Reference for Audit Committees Worldwide, avoids a one-size-fits-all approach. The tool is a focused, yet scalable, resource that encourages proactive efforts by audit committees.

The tool contains 18 sets of sample questions that the audit committee, or its counterpart, could consider asking to gauge the quality of the services and sufficiency of resources provided by the auditor, communication and interaction with the auditor, and the auditor’s independence, objectivity, and professional skepticism.

The following is a stripped-down version of the set of 18 sample questions that are included in the tool:

  1. Did the lead audit partner and audit team have the necessary knowledge and skills to meet the company’s audit requirements?
  2. Did the lead audit partner discuss the audit plan and how it addressed company/sector-specific areas of accounting and audit risk (including fraud risk) with the audit committee?
  3. If portions of the audit were performed by other teams in other jurisdictions, or in other countries by the firm’s global network or other audit firms, did the lead audit partner provide information about the technical skills, experience, and professional objectivity of those auditors?
  4. Has the audit firm sufficiently explained how the changes or rotations of lead audit partner or senior audit team personnel would be handled and managed?
  5. During the audit, did the auditor meet the agreed-upon performance criteria as reflected in the engagement letter and audit plan?
  6. Did the lead audit partner advise the audit committee of the results of consultations with the audit firm’s office or leadership that is responsible for audit quality, standards, methodology, or other technical resources on accounting or auditing matters?
  7. If the company’s audit was subject to inspection by regulators, did the auditor advise the audit committee of the selection of the audit, findings, and the impact, if any, on the audit results in a timely manner?
  8. Does the audit firm have the necessary sector experience, specialized expertise in the company’s critical accounting policies, and geographical reach required to continue to serve the company?
  9. Did the audit team have sufficient access to specialized expertise during the audit?
  10. Was the cost of the audit reasonable and sufficient for the size, complexity, and risks of the company?
  11. Did the lead audit partner maintain a professional and open dialogue with the audit committee and audit committee chair?
  12. Did the auditor adequately discuss the quality of the company’s financial reporting, including the reasonableness of accounting estimates and judgments?
  13. In private sessions, did the auditor discuss sensitive issues candidly and professionally?
  14. Did the auditor inform the audit committee of current developments in accounting principles and auditing standards relevant to the company’s financial statements and the potential impact on the audit?
  15. Did the audit firm report to the audit committee all matters that might reasonably be thought to bear on the audit firm’s independence, including exceptions to its compliance with independence requirements?
  16. Were there any significant differences in views between management and the auditor?
  17. If the auditor is placing relevance on management and internal audit testing, did the audit committee agree with the extent of such reliance?
  18. In obtaining preapproval from the audit committee for all nonaudit services, did the lead audit partner discuss safeguards in place to protect the independence, objectivity, and professional skepticism of the auditor?

The tool also includes a sample form and rating scale for obtaining input from company personnel about the external auditor, as well as resources for additional reading that can benefit audit committees and others charged with corporate governance.

The updated US version of the External Auditor Assessment Tool, also published on June 2, contains a detailed appendix that highlights relevant US requirements and standards.

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