Audit committees have a new tool to consider to help them evaluate their external audit firm.
The Audit Committee Collaboration, backed by seven separate groups with various missions around corporate governance and investor advocacy, has updated its tips to audit committees that are meant to help them conduct their evaluation of external auditors. The External Auditor Assessment Tool was first introduced in 2012 to help audit committees assess the quality of the audit they receive from external auditors and to select or recommend the firm to the board.
“Generally, audit committees, who stand in the shoes of investors, have responsibility for overseeing the integrity of a company’s financial statements and, in many jurisdictions, engaging and overseeing the external auditor,” says Cindy Fornelli, executive director of the Center for Audit Quality, which helped produce the tool. The audit committee’s evaluation of the external auditor should address the qualifications and performance of the auditor, and the quality and candor of the auditor’s communications with the audit committee and the company. The assessment should also explore the auditor’s independence, objectivity, and professional skepticism, she says.
The tool is meant to avoid a one-size-fits-all approach to the assessment, says the Collaboration in a statement. Instead, it is a scalable resource that encourages audit committees to take a proactive approach to the evaluation through a series of sample questions the committee could pose to its audit firm. Questions focus on gauging the quality of services and adequacy of resources provided by the auditor, the communication and interaction with the auditor, and the auditor’s independence, objectivity, and skepticism.
The assessment tool also contains a sample form and rating scale for gathering input from company personnel and resources for additional reading. The updated version also provides a detailed appendix to highlight standards and requirements that are relevant in the United States.
The new "worldwide" version of the tool can be used by audit committees or those charged with governance even outside the United States, says Fornelli. “Audit committees operate in a business environment that is marked by new challenges, complexity, and increasing scrutiny and interest from regulators and investors,” she says. “This tool, developed with the input of key stakeholders, can help audit committees address evolving challenges with a focused yet scalable approach.”