A well-functioning Audit Committee is the key to achieving good governance
Based on the new rules and regulations on auditor independence
and board responsibilities, all audit committee have to update their charter,
composition and configuration to comply. We suggest that a review, assessment
and evaluation of the impact, principles, practices and functions must be
conducted, before the new regime goes into effect. At the Audit Committee
events in Copenhagen and London, participants will receive three different
tools to implement, adopt or update the new requirements.
As part of change mangement procedure,
based on past experience we have developed three Audit Committee assessment
tools to assist the committee members with practical guidance, review
and tips based on the performance of audit committee's from a recent survey.
Findings of the Survey
The functions of the audit committee have developed by leaps and bounds
since the responsibility trusted on them by the Sarbanes-Oxley Act of
2002. Initially the audit committee was primarily responsible for local
oversight of accounting, financial reporting, internal controls, and audits.
Now most audit committees have too much on their plates. Inspite of the
added responsibilites the survey shoes that most audit committees have
come to grips with the added compliance and governance burdens and risk
management stakeholder demands.
Effective Audit Committees
The Audit Committee (AC) survey or assessment revealed that there was
a need to ensure that the necessary audit committee structure was in order.
Some of the most common findings:
Update the AC charter. Prepare a document based on the scenarios
on how to the AC adhered to the current charter. The report should re-establish
audit committee role, authority, and responsibilities. It is often a plus
that the skills and experience of AC members must be updated to reflect
the new responsibilities.
Update the composition and characteristics; Audit committee members do
possess the necessary competencies for the AC to perform its duties and
function effectively based on the charter; however it is advisable to
define the critical success factors so that there is both a benchmark
and a threshold to the KPI's.
Update the agenda: The annual priorities of the AC should reflect those
core values of the organisation. These values could also be based on the
policy or mission statements. In particular cases, the AC have provided
written procedures on how to embrace an open dialogue based on the IT
issues in the organisation. Another finding of the survey was the need
to get guidance on how to enter into mediation or warranted conflict resolution
based on the interests or qualifications of the committee members.
In some cases, there was a need to develop formal procedures on how committee
members can relate back to the charter when unusual circumstances or even
disputes require the need for expertise to be invited (as it is possible
under the new law) or offer "safe haven".
By and large, the survey shows that AC have significantly improved because
they have to capability to ask penetrating questions, are involved in
setting the GRC agenda, and continually review the company's vision, core
values, and critical success factors.
The tools/templates given at the two conferences are;
Audit Committee Annual Member Evaluation Tool
Audit Committee Annual Evaluation of the External Auditor Tool
Audit Committee Annual Survey Tool