Investors want and expect a quality audit and effective audit committees and auditors build confidence in the integrity of financial reporting.
Audit committees are responsible for creating an environment that accommodates an open discussion in a culture of integrity, respect and transparency between management and auditors. Audit committees also oversee auditor work and need to understand the audit strategy, be satisfied that it addresses the major risks, and make sure auditors exercise appropriate professional skepticism. They must also ensure that the auditor has an appropriately independent mindset from management and is truly objective. This enables the audit committee to draw conclusions about the effectiveness of the audit.
Audit committees should ask their auditors what they are doing to promote consistency of audit execution, whether additional resources are available if needed to do the audit, and who in the audit firm is accountable for the quality of the work done.
CPAB believes audit committees should have frank discussions with their auditors about what is a reasonable fee for audit services. However, if the quality of the audit is affected by a fee that is less than reasonable, the audit committee is doing a disservice to shareholders. Audit committees need to ensure that audit fees are fair and that they are obtaining a quality audit.
CPAB regularly meets with audit committee chairs to discuss audit quality insights through one on one meetings and audit quality roundtables.
In 2013 CPAB consulted with key stakeholders including corporate directors, audit firms and securities regulators to develop a Protocol for Audit Firm Communication of CPAB Inspection Findings with Audit Committees (Protocol). Audit firms who voluntarily participate in the Protocol share significant file-specific inspection findings with their clients’ audit committees.