Securities regulators globally have banded together to call on audit committees to take a fresh look at their role in promoting and supporting quality audits.
The International Organizations of Securities Commissions, of which the Securities and Exchange Commission is a member, has issued a report outlining its view of the role audit committees play in fostering high-quality external audits for publicly listed companies. The report summarizes “good practices” for audit committees to use as benchmarks for their own performance in assessing their external audits.
The IOSCO notes audit regulators globally have indicated a need to improve audit quality and to make audit execution more consistent. The report cites the findings of the International Forum of Independent Audit Regulators, of which the Public Company Accounting Oversight Board is a member, which has reported inspectors globally have raised concerns in as many as 40 percent of inspected audits. The PCAOB has delivered harsh findings to major firms in the United States for the past several years, with some firms making more progress than others to address them.
“Practices of audit committees within the same jurisdiction, and across jurisdictions, can vary from one listed company to the next, leading to a lack of consistency in the way audit committees carry out their responsibilities,” the IOSCO says.
The IOSCO report says audit committees should develop a recommendation for the appointment of the auditor independent of management focusing on audit quality, not fee reduction. “Opinion shopping should be avoided and auditor independence should be a key consideration,” the report says.
The report also tells audit committees they should assess current and potential auditors based on a wide range of criteria, including firm resources, knowledge of the company’s business and industry, involvement of senior auditors, use of outside auditors, technical expertise, geographic reach, coverage of internal systems and controls, and how the engagement partner and audit team are accountable within their firm for audit quality. The audit committee should also consider “the extent to which audit fees are consistent with the audit plan and a quality audit,” IOSCO says.
In addition, the report elaborates on how audit committees should facilitate the audit process, assess the auditor’s independence, communicate with the auditor, and assess audit quality, including by asking auditors “how the auditor addresses findings by audit regulators.”