New Audit Committee Standard of Care – External Auditor Assessment Tool From NACD, NYSE Governance Services, Center for Audit Quality, and Others

Several influential organizations have issued External Auditor Assessment Tool, A Reference for Audit Committees Worldwide. Here is a link to a PDF of the Tool auditor_assessment_tool_worldwide.

The tool is presented by the NACD, NYSE Governance Services, the Center for Audit Quality, the Independent Directors Council, the Association of Audit Committee Members, and Tapestry Networks. And that is why, i.e., because of the stature of the presenting organizations, this document has or will present a standard of care, i.e., a standard in the relevant community, for audit committees on the topics that the tool covers.

Every audit committee member of a public company needs to read, digest and understand this document (it’s not very long – basically 10 pages in length and large type font). On its face the document provides sample questions and issues for audit committees to discuss and consider when assessing their organization’s external auditor. But the document provides more – as you analyze the questions and issues, they present sample questions and issues that the external auditor needs to have satisfied and that the audit committee needs to oversee.

Consider for example the following sample questions:

1. Did the lead audit partner discuss the audit plan and how it addressed company/sector-specific areas of accounting and audit risk (including fraud risk) with the audit committee?  Well . . . did this occur and in what detail?

2.  During the audit, did the auditor meet the agreed-upon performance criteria as reflected in the engagement letter and audit plan?  So . . . did the audit satisfy for example the applicable Statements on Auditing Standards?

3.  In private sessions, did the auditor discuss sensitive issues candidly and professionally?

4.  Did the auditor adequately discuss the quality of the company’s financial reporting, including the reasonableness of accounting estimates and Judgments?

5.  Were there any significant differences in views between management and the auditor?

6. Is the external auditor responsive and communicative (e.g., by soliciting input relative to business risks or issues that might impact the audit plan, identifying and resolving issues in a timely fashion, and adapting to changing risks quickly)?

7. Does the external auditor proactively identify opportunities and risks (e.g., by anticipating and providing insights and approaches for potential business issues, bringing appropriate expertise to bear, and by identifying meaningful alternatives and discussing their impacts)?

And the suggested questions and issues continue.

Although many of these suggested questions and issues already are covered in various Statements on Auditing Standards, how often do you hear Statements on Auditing Standards discussed in the context of audit committee responsibilities? They have been in my published materials for years (including for example, many audit committee guideline and evaluation discussion papers; Audit Committee Functions and Responsibilities, Chapter 5A for the California Continuing Education of the Bar publication, Advising and Defending Corporate Directors and Officers (October 2007); and Accounting and Its Legal Implications, A Guide for Managers, Business Owners, and Entrepreneurs (Irwin Professional Publishing, Business One 1994).

This audit committee assessment tool, presented by high-stature organizations, puts the spotlight on the topics that the document discusses.  Some people will think this is good, and some will think it is bad. Some people will believe that the document goes too far, and other people will identify the many questions and issues that it does not cover. Nevertheless, most of these questions and issues have already existed for years.

Dave Tate, Esq. (San Francisco/California), http://directorofficernews.com

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Comments for Audit Committees about the PCAOB May 2015, Audit Committee Dialogue

This blog post includes a short video discussing the Public Company Accounting Oversight Board’s May 2015, Audit Committee Dialogue, and below the video you will find a link to the Audit Committee Dialogue. Please pass this blog post to everyone would be interested in these materials. Thank you. Dave Tate, Esq. (San Francisco and California).

Click on the following link for the PCAOB’s May 2015, Audit Committee Dialogue, Click Here.

Audit Committee Self-Evaluation Form For Your Use

Audit committee self-evaluation form for your use, click on the following: Audit Committee Self-Evaluation Form David Tate Esq 10302014
Dave Tate, Esq. (San Francisco/California)

Lessons Learned from the Transition to COSO 2013

Protiviti has shared with us a useful Top 10 Lessons Learned from Implementing COSO 2013. I especially like this section: It is presumed that everyone understands that a top-down, risk-based approa…

Click on the following for the discussion: normanmarks.wordpress.com

A good COSO 2013 discussion from Norman and Protiviti.

Dave Tate, Esq. (San Francisco/California)

My other blog: trust, estate, conservatorship and elder abuse litigation, http://californiaestatetrust.com

Addressing Cybersecurity Oversight in Audit Committee Charters | JD Supra

Cybersecurity continues to emerge as a key risk that is attracting the attention of regulators and boards of directors. Companies take different approaches regarding how the board…

Click on the following link for the discussion: www.jdsupra.com

Click on the link, which contains a short JD Supra update from Wilmer Hale discussing KPMG’s 2015 Global Audit Committee Survey. The survey is long and contains useful information (over 80 pages). I am making this post because of the discussion about audit committees being given responsibility for cybersecurity oversight. That’s fine, but I suggest that the overall board still must be actively involved in this oversight, you need to be sure that the audit committee members are qualified and have the time to take on this area of oversight, and the audit committee members and other stakeholders should have a good understanding about just what the oversight involves and how the committee should go about that oversight.

As we all know, cybersecurity is an important area of oversight that can significantly effect all businesses. Enjoy.

Dave Tate, Esq. (San Francisco/California)

My other blog: trust, estate, conservatorship and elder abuse litigation, http://californiaestatetrust.com

SSARSs Clarity Project

The standard eliminates the need for the accountant to determine whether they?ve prepared financial statements by drawing a clear line between preparation and compilation.

Click on the following for the article: www.cpa2biz.com

Why is this important?  Well . . . if you are an accountant who performs review and compilation services, it should be important to you. And if you are someone who depends on information and representations provided in reviews or compilations, it should be important to you, if you care to know whether a compilation or review provides you with any useful information. Speaking of the subject, I never hear anyone discussing whether a quarterly review for a public company provides any useful information. I believe that at least in theory they do, but, if not, then why continue with the expense?  Dave Tate, Esq. (San Francisco)

My other blog: trust, estate, conservatorship and elder abuse litigation and administrations, http://californiaestatetrust.com

Pressure Intense on Internal Audit – the Audit Committee and Auditors Should Ask

The following link is to a troubling news release from the Institute of Internal Auditors about pressure that some internal auditors feel or experience in the performance of their tasks. That type of situation is troubling in and by itself. However, with the ramp-up of whistleblower reporting that type of situation also more likely carries with it the potential for the company’s exposure to liability. These issues also reflect upon tone-at-the-top, governance and internal controls. The independent outside auditor and the audit committee should ask the chief audit executive (CAE) about these issues and the related atmosphere at the company, if for no other reason than to spot and resolve any potential issues. The following is the link to the IIA news release:

Click to access Politics-of-Internal-Audit-news-release.pdf

Dave Tate, Esq. (San Francisco and California)

On the 2015 Audit Committee Agenda

10 things that audit committees should keep in mind as they consider and carry out their 2015 agendas.

Click on the following link for the discussion: www.kpmg-institutes.com

Good broad topic areas to consider, although I prefer the following discussion materials that I have written as they are more specific – click on the following link – Audit Committee Self-Evaluation Form David Tate Esq 10302014.

Dave Tate, Esq. (San Francisco / California).