The audit committee should be authorized to hire independent auditors, counsel, or other consultants as necessary. If one doesn’t exist, establish a policy for the audit committee to preapprove engaging independent auditors and other experts. Discuss whether a budget should be established for this purpose. Requests for proposals (RFPs) should be used as time permits. Evaluate all engagement letters with Counsel.
The RFP should detail the scope of the audit. As part of the evaluation of engagement letters, consider that each is comparable and meet with the external auditors to properly plan the engagement. Later, discuss planned scope for audit of the current year and the standard of work to be followed. In addition, discuss the timing of progress reports, to be provided by the independent auditors, and the communications process to be followed in the event of deviations from the plan. As the audit progresses, you may need to review with the general counsel and the CAE, legal and regulatory matters that, in the opinion of management, may have a material impact on the financial statements, related organization compliance policies, and programs and reports received from regulators. It is your role to discuss whether the organization is in compliance with laws and regulations that govern the environment(s) in which it operates, as well as other applicable laws and regulations. Report to the board that the review has taken place and any matters that need to be brought to its attention. Report on information submitted by external accountant, counsel, or consultant and work to continually review the progress and compliance as needed.
Create an agenda for the ensuing year or review and approve the agenda submitted by the CAE.
Oversee the preparation of, or prepare, a committee annual report. Review and discuss the report with your CAE and outside auditors. Once the annual report is finalized and approved, present it to the board and review it all as part of the completion of audited financial statements process.
Document the meeting in your committee meeting minutes. On an annual basis, review the scope of the previous year’s audit, and the interrelationship between the internal and independent auditors with respect to the scope of the independent auditors’ work. At another of the meetings each year, review the plans of Internal Audit for audits in the current year, if applicable.
Review with management and the independent auditor the organization’s annual financial statements and related footnotes as well as the independent auditors’ audit of the financial statements and their report thereon. The independent auditors’ judgments about the quality, not just the acceptability, of the organization’s accounting principles as applied in its financial reporting are important to understand. Evaluate any significant changes required in the independent auditors’ audit plan. Discuss each matter, and others that come to the attention of your committee through this process, with management (including the CAE) and the independent auditors. Review with management the course of action to be taken for any action requiring follow-up. Monitor any follow-up action that requires continued audit committee intervention. As always, submit reports and documentation of discussions, resolution of disagreements, or action plan for any item requiring follow-up.
At the completion of the external audit, review all material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences. Discuss each item with the independent auditors and management (including the CAE) and conclude on the appropriateness of the proposed resolution. Submit reports and documentation of discussions, resolution of issues, and the action plan for any items requiring follow-up and monitoring. Review, at the completion of the external audit.
Your committee needs to interactive with the CAE, management and the external auditor efficiently and effectively in order to obtain the best possible product for the organization. Further, it will allow a free flow of information for future improvement as well.
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