The International Organization of Securities Commissions (IOSCO) has published a consultation report inviting input to a possible Good Practices Report on how issuer audit committees can promote and support external audit quality.
IOSCO acknowledges the crucial role independent, high quality audits play in supporting investors’ confidence in a company’s financial report. To that end, IOSCO proposes several ways in which the audit committee can promote quality audits:
- recommend an external auditor independently of management, with selection criteria set upfront.
- when assessing auditors, consider the auditor’s knowledge of the business and industry, the extent of involvement of senior team members in the audit, use of other auditors, use of technical and specialist expertise, capability in different geographical locations, coverage of internal systems and controls, and how the engagement partner and team are accountable within their firm for audit quality.
- consider the extent to which audit fees are consistent with the audit plan and a quality audit.
- consider the extent to which audit processes are planned so an effective quality audit can be conducted within reporting deadlines; seek explanations and advice on the appropriateness of accounting treatments and estimates and, where appropriate, challenge the applied estimates and treatments.
- review and challenge management’s accounting treatments and estimates, and where appropriate, seek independent third party advice and not seek advice from the auditor. Oversee the development of policies on auditor independence, undertake procedures to satisfy itself of that independence and require non-audit services to be subject to the committee’s prior approval.
- establish a direct line of communication with the auditor. The communication should include concerns and risks affecting the processes which support the information in the financial report, and how those concerns and risks are being addressed by directors and management and responded to in the audit.
IOSCO also makes several proposals in relation to the composition of audit committees, the role of the committee in assessing audit quality, and audit committee reporting.
Comments should be submitted on or before 24 July 2018.