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Audit Committee Practices/Processes
Ten To-Do’s for Audit Committees in 2008
This publication points to ten issues (from risk management, to supporting the CFO, to assessing the tone at the top and throughout the organization) that should be considered by every audit committee as they develop their 2008 agenda.
ACI/NACD Audit Committee Member Survey (2006-2007)
In our annual Audit Committee Institute (ACI) / National Association of Corporate Directors (NACD) survey, audit committee members from across the country share their views on key audit committee issues—including oversight priorities and practices, overall effectiveness, and opportunities for improvement. Key survey findings are highlighted in a 20-page publication (supplemented by observations and survey results from other recent audit committee forums to help provide further insight into the trends and priorities shaping audit committee practices in the U.S.) For a copy of the survey publication, contact your local KPMG office or the ACI at 1-877-KPMG-ACI or auditcommittee@kpmg.com.
Five Guiding Principles for Audit Committees
Oversight practices that work for one audit committee may not work for another; yet, certain “guiding principles” underline the effectiveness of every audit committee—even as specific oversight practices evolve to address changing risks, regulatory requirements, and corporate governance needs. Newly updated, ACI’s Five Guiding Principles for Audit Committees considers five principles that help ensure oversight practices are applied effectively—that is, by the right people with the right information, processes, and perspectives.
An Approach to Effective Audit Committee Self-Evaluation
Audit committees are faced with increased expectations from many groups, including shareholders, shareholder and governance activists, regulators, the media, and fellow board members. The purpose of this document, An Approach to Effective Audit Committee Self-Evaluation, is to suggest a straightforward evaluation approach for the audit committee based on some of the broad expectations of shareholders, the ultimate group whose interests the board and the audit committee represent. We have based this approach on ACI's Five Guiding Principles for Audit Committees (see above).
We encourage the members of the audit committee to consider the elements included in this document, as well as other approaches, and then develop their own tailored approach to evaluating the effectiveness of their audit committee.
ACI Updates Corporate Accountability Reforms Comparison
KPMG's Audit Committee Institute (ACI) has updated as of March 31, 2004, a side-by-side comparison of select elements of the Sarbanes-Oxley Act of 2002 and the NYSE, NASDAQ, and Amex stock exchange corporate governance listing standards approved by the Securities and Exchange Commission in November / December 2003. This summary of select elements is meant to provide high-level overview of elements of the new requirements that impact audit committees and reflects the status of these issues. The comparison was distributed at the Spring 2004 Audit Committee Roundtable series.
A Guide for Directors, Management, and Consultants, Fourth Edition
Audit Committees: A Guide for Directors, Management, and Consultants, written by Frank M. Burke, J.D., CPA and Dan M. Guy, Ph.D., CPA, is now in its fourth edition. The professionals at ACI have referred to this book often and we've concluded that it is an excellent resource for audit committees and those who interact with audit committees.
This book is a user-friendly guide that contains the much-needed tools to assist companies, not-for-profit organizations, and public sector entities with creating and maintaining effective audit committees. The Guide is written for directors serving on audit committees, other members of the board of directors, CEOs, CFOs, in-house legal counsel, internal and external auditors, outside legal counsel, and other consultants to audit committees. In addition to explaining the rudiments of setting up an audit committee, it emphasizes the importance of regular evaluations of audit committee performance to help make the audit committee more effective and efficient.
This publication may be ordered by online at CCH (search using "audit committee").
Blue Ribbon Commission - Improving Effectiveness of Corporate Audit Committees
The Blue Ribbon Committee on Improving the Effectiveness of Corporate
Audit Committees issued its report in February of 1999. The Committee's
recommendations formed the basis for regulatory changes that were
adopted in the following months by the Securities and Exchange Commission
(SEC), New York Stock Exchange (NYSE), American Stock Exchange (AMEX),
and the National Association of Securities Dealers (NASD). The American
Institute of Certified Public Accountants (AICPA) also amended their
Statement on auditing Standards (SAS) 61 and 71 in response to the
committee recommendations requiring external auditors to perform
quarterly reviews and modifying required communications between
audit committees and their auditors.
Auditor Independence
On November 15, 2000 the SEC approved its final rules on auditor independence (see Title 17, Chapter II of the Code of Federal Regulations). The event was important not only because of the significance of the changes that were enacted, but also for the intensity of the debate surrounding these important decisions. The final rule reflected a balanced approach to auditor independence providing substantial protection of the public interest while enabling accounting firms to continue to provide the highest-quality auditing services along with a range of additional services important to their audit clients.
The SEC rule contains four major provisions:
- It added an "appearance of independence" standard.
- It restricted certain non-audit services provided by audit firms.
- It liberalized rules regarding financial investments and family relationships applicable to auditors and their family members.
- It required new proxy disclosures for professional fees and services.
The rule provides guidance on evaluating the independence of an auditor to an audit client with regard to investment and employment relationships and the scope of services provided by an auditor to an audit client. The rule requires disclosures in the annual proxy statement of audit fees, financial systems design and implementation fees and other fees. Furthermore, the rule requires proxy statement disclosure as to whether the audit committee has considered if the non-audit services were compatible with maintaining the principal accountants independence.
External Advice to Audit Committees
This section contains materials from external law firms that may be of interestto audit committees. (Posted with permission.)
More information can be found at www.mayerbrownrowe.com/sarbanesoxley
Analysis of the 1999 Audit Committee Regulations
KPMG's Analysis of the New Audit Committee Regulations includes
a summary of the regulations, consideration of their impact, reactions
from corporate board members, excerpts from the final regulations,
comparison of the final rules to those initially proposed by the
Blue Ribbon Committee and tools developed by the Audit Committee
Institute to assist with implementation of the new rules.
The Business Lawyer:
How to Really Make Audit Committees More Effective
This May 1999 article from The Business Lawyer, Vol. 54, "How
to Really Make Audit Committees More Effective," authored by John
F. Olsen, includes an informative and descriptive "Ten Rules for
Really Effective Audit Committees." This 15-page article also details
some now-historical background impacting audit committees in the
introduction, including the Blue Ribbon Committee and The Treadway
Commission.
O'Malley Panel Recommendations
At the request of former SEC Chairman Arthur Levitt, the Public
Oversight Board (POB) appointed the Panel on Audit Effectiveness
in October 1998 to assess whether independent audits of the financial
statements of public companies adequately serve and protect the
interest of investors. The eight-member panel and its staff, headed
by Shaun F. O'Malley, former Chair of Price Waterhouse LLP, conducted
a comprehensive review and evaluation of the way independent audits
are performed, and assessed the effects of recent trends in auditing
on the public interest. The Report and Recommendations of The
Panel on Audit Effectiveness (now commonly referred to as the
O'Malley Panel or the Panel) was released by the POB in late August
2000.
The Panel emphasized in its conclusion that "while many specific
recommendations are made for improvements in the conduct of audits
and governance of the profession, our report demonstrates that both
the profession and the quality of its audits are fundamentally sound.
The Panel believes the recommendations in this report will result
in more effective audits that improve the reliability of financial
statements, enhance their credibility, contribute to investors'
confidence in the profession, and improve the efficiency of the
capital markets."
The over 200 specific recommendations were addressed primarily
to auditing and accounting standards setters, audit firms, and the
SEC Practice Section of the AICPA. Additional recommendations were
addressed to audit committees, the SEC, and others, including the
Independence Standards Board.
The inclusion of recommendations addressed to audit committees
in the Panel's study of audit effectiveness acknowledges the significant
impact that strong and independent audit committees have on the
effectiveness and independence of the external auditor. The O'Malley
Panel stated that it strongly supports "more proactive audit committees
and the development of stronger relationships between boards of
directors (and their audit committees) and auditors that recognize
that the auditors are ultimately accountable to the board of directors
and audit committee as representatives of the shareholders." This
is consistent with the existing requirement that audit committee
charters specify this "accountability" of the external auditor to
the board and the audit committee.
In May 2001, during a speech at the 20th Annual SEC and Financial
Reporting Institute Conference, Lynn Turner, then Chief Accountant
of the SEC, stated: "To improve the effectiveness of audits, we
need to ensure that auditing firms and the Auditing Standards Board
fully implement these recommendations on a timely basis. To that
extent, I have asked the Public Oversight Board to report publicly
on the progress made on the O'Malley Panel's recommendations."
Click
here to link to the Public Oversight Board's Panel on Audit
Effectiveness Web site.
Shaping the Audit Committee Agenda
Shaping the Audit Committee Agenda was originally published
by KPMG soon after the release of the report of the 1999 Blue Ribbon
Committee on Improving the Effectiveness of Corporate Audit Committees.
This book from KPMG continues to be a valuable resource to audit
committee's considering their role in the overall corporate governance
structure.
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