Best Practices in Monitoring the External Audit

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In monitoring the company’s external audit, the audit committee could consider the following “best practices:

  1. 1. Participate in the Retention, Review and Discharge of the Independent Auditors
  1. 2. Discuss  the  Company’s  Financial  Statements  and  Accounting  Policies  with  the Independent  Auditors

-       before public release, review with the independent auditors both the quarterly financial statements (after the independent auditors have completed their review under Statement on Auditing Standards No. 71), and the audited financial statements;

-       in connection with quarterly and annual reviews, obtain the independent auditors’ explanation and analysis of any questions or concerns involving the accounting policies and resulting financial statements, including:

-       in connection with the quarterly and annual review of the company’s financial statements, discuss with the independent auditors the matters set forth under Statement on Auditing Standards No. 61, including:

-       require the independent auditors to provide the audit committee with a copy of the management letter provided to management, and discuss the letter with the independent auditors;

-       discuss with the independent auditors their periodic reviews of the adequacy of the company’s accounting and financial reporting processes, staffing and systems of internal control;

-       discuss the independent auditors’ methods for risk assessments and the results of those assessments and any changes in the scope of the audit as a result of such risk assessments;

  1. 3. Monitor  the  Independence  of  the  Independent  Auditors

-       monitor at least quarterly the independence of the independent auditors by:

- consider whether fees billed for information technology services and other non- audit services are compatible with maintaining the auditors’ independence;

- consider requiring pre-approval by the audit committee of non-audit services provided by outside auditors, or those above a specified dollar threshold or involving certain types of services (such as information technology services);

- inquire about the manner in which the audit partner is compensated for his work on the company, including whether the partner receives any compensation based on the non-audit services provided to the company.

Further reading: Corporate Governance | Audit | Performance Improvement

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