Transcript
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• Audit Committee - Committee of the Board of Directors that ensures audit quality
• Publication in January 2014 entitled “Oversight of the External Auditor – Guidance for Audit Committees”
o Chartered Professional Accountants Canada
o Canadian Public Accountability Board (CPAB)
o Institute of Corporate Directors
• Summarizes responsibilities of audit committees with best practices
Audit Committee Best Practices
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• Some of their responsibilities:
o Oversee the work of the external auditor
o Recommend to the Board the nomination of auditor
With the primary objective to ensure audit quality
Responsibilities
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At least 3 members, all must be:
• Independent
• Financially literate
• Director of entity
Composition of Committee
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Likely to be achieved by an audit team that:
• Exhibits appropriate values, ethics and attitudes
• Has the requisite knowledge, skills, experience and sufficient time allocated to perform the audit work
• Applies a rigorous audit process and quality control procedures that complies with law, regulation and applicable standards
• Provides useful and timely reports
• Interacts appropriately with relevant stakeholders
Audit Quality
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Relationships in Financial Reporting Governance
Board of Directors or Audit
Committee
ManagementAuditors
Culture of Integrity, Respect and Transparency
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Review overall audit strategy
• What reports will be needed (consolidated, funders, etc.)
• General timing of work and composition of audit team
• Geographical locations to be visited by group auditor
• Results of previous evaluation of auditor that may affect current year
Oversee the Work of Auditor
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Review overall audit strategy – FOCUS ON:
• Rationale supporting critical audit planning decisions and choices
• Timing of major audit activities
• Whether the auditors’ analysis of risks = sufficient knowledge of business
• Key audit deliverables
• Resources needed to execute the plan
Oversee the Work of Auditor
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Auditor should report any difficulties in executing audit plan:
• Areas where audit was behind schedule and reasons
• Unexpected and extensive auditor effort to obtain evidence
• Changes in business conditions or circumstances
• Identification of unexpected audit results
Separately meet in camera with auditors and management
Oversee the Work of Auditor
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Evaluating Auditor’s Findings
• Primary focus of review of auditor’s communication
o Enough information to recommend approval of financial statements to board
o Auditors have exercised professional skepticism and performed a quality audit
Oversee the Work of Auditor
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Prompt communication and in-depth discussion with both management and auditors are required if findings could:
• Require auditors to modify their opinion
• Add an emphasis of matter paragraph to report
• Lead external auditors to question organization’s ability to continue to operate as a going concern
Oversee the Work of Auditor
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• Informed decision by doing annual assessment
o Audit quality considerations
Auditor independence, objectivity & professional skepticism
Quality of engagement team provided by auditor
Communication & interaction with auditor
o Quality of service considerations
• Review with auditors to continually improve effectiveness & performance
• Consider if there are actions that can improve committee’s own processes
Recommend Auditors to Board
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Periodic comprehensive review of auditor
o Fear of complacency & independence concerns
o Recommended every 5 years
o Outcome:
retain the firm or
put the audit out for tender
o Identify areas for improvement for both the auditors and committee
Recommend Auditors to Board
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Comprehensive review includes reviewing and evaluating:
• Significant trends and results identified in previous annual assessments
• Safeguards against independence & familiarity threats
• How the audit firm has responded to past evaluations
Recommend Auditors to Board
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Common reasons for audits going to tender:
• Lower fees
o Ensure RFP outlines all of the required services – avoids misunderstandings and surprise bills
o Evaluate firm’s performance on regular basis
• Complacency and independence
o Enquire about firm’s quality control procedures to address this risk
o Consider requesting a rotation of certain audit team members if this is a concern
Recommend Auditors to Board
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