by Cydney Posner
The Audit Committee Collaboration (ACC) has announced the release of new tools, the External Auditor Assessment Tool: A Reference for Audit Committees Worldwide and an updated U.S. version of the External Auditor Assessment Tool, both designed to assist audit committees in evaluating the external auditor, to assess the quality of the audit or to select or recommend the retention of the audit firm. The U.S. version includes an appendix that highlights relevant U.S. requirements and standards. The Tool contains 18 sample question sets that an audit committee could use to frame its own analysis of three categories of information: quality of services and sufficiency of resources; the quality and candor of the auditor’s communications and interactions with the audit committee and the company; and the auditor’s independence, objectivity and professional skepticism.
For example, with regard to quality of the auditor, the Tool recommends that audit committees
“assess whether the primary members of the audit engagement team demonstrated the skills and experience necessary to address the company’s areas of greatest financial reporting risk and had access to appropriate specialists and/or national office resources during the audit. The engagement team should have provided a sound risk assessment at the outset of the audit, including an assessment of fraud risk. During the engagement, the auditor should have demonstrated a good understanding of the company’s business, industry, and the impact of the economic environment on the company. Moreover, the auditor should have identified and responded to any auditing and accounting issues that arose from changes in the company or its industry, or changes in applicable accounting and auditing requirements. Another consideration for the audit committee is the quality of the engagement teams that perform portions of the audit in various domestic locations, or in other countries by the audit firm’s global network or by other audit firms…. Broader but nevertheless important considerations are (1) whether the audit firm has the relevant industry expertise, as well as the geographical reach necessary to continue to serve the company, and (2) whether the engagement team effectively uses those resources. Other firm-wide questions include the results of the audit firm’s most recent inspection report by the Public Company Accounting Oversight Board (PCAOB)….”
Questions addressing those issues are then provided for the audit committee to consider.
The ACC suggests that it is appropriate to obtain observations on the auditor from others within the company. Accordingly, the Tool includes a sample survey for obtaining input from various company personnel, including management, internal audit and other key managers, about the external auditor. The ACC notes that, in “assessing information obtained from management, the audit committee should be sensitive to the need for the auditor to be objective and skeptical while still maintaining an effective and open relationship. Accordingly, audit committees should be alert to whether management displays a strong preference for or a strong opposition to the auditor—and follow up as appropriate.”
The ACC includes members from the Association of Audit Committee Members, Inc., Center for Audit Quality, Independent Directors Council, National Association of Corporate Directors, NYSE Governance Services and Tapestry Networks.