The global association of audit regulators is pondering how audit committees can be better leveraged to raise the bar on audit quality, including whether audit committees should have a more direct line of contact with audit regulators.
The International Forum of Independent Audit Regulators, which includes the Public Company Accounting Oversight Board in the United States, published a paper recently describing its observations about the “state of play” regarding audit committee requirements globally. The paper raises questions for audit regulators globally to consider in terms of how audit committees oversee auditors and what further steps could be taken to improve audit quality. It also provides nearly 20 questions audit committees could ask their auditors now, absent any regulatory change, that would elicit more discussion to raise the bar on audit quality.
The paper says audit quality might benefit from a number of initiatives, like better criteria to define and determine independence and special skills for audit committees and defined audit quality indicators that would give audit committee’s a tool for measuring auditor performance. Jurisdictions could consider asking audit firms and audit committees to consult more closely on audit regulatory findings, like inspection results, or requiring more structured periodic assessments of auditor performance.
IFIAR also asks whether audit committees could make use of other sources of information beyond that provided by management, which can’t be regarded as objective in its assessment of auditors. Even more, IFIAR explores ideas like engaging shareholders in auditor selection and assessment and using more “comply or explain” procedures in carrying out audit committee duties.
In terms of audit committees communicating more directly with regulators, IFIAR suggests consideration of whether regulators should share inspection findings directly with audit committees and whether that would give committees a better footing for assessing auditor performance. It also ponders whether such sharing should occur for individual audits or for higher-level information about individual audit firms.
The IFIAR paper also suggests a series of questions audit committees could ask their audit firms about issues like materiality judgments, the nature and extent of audit work, the audit of accounting estimates and related disclosures, work performed by other firms beyond the principal audit firm, and quality reviews by audit regulators and internal processes.