Audit Committee Best Practices

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JULY 2008 - Audit committees play an increasingly important role in the governance of public and private organizations, both for-profit and nonprofit. In April, RSM McGladrey held an information session on audit committee responsibilities relating to internal controls and information technology (IT). The presenters discussed current trends and baseline techniques and best practices that any organization can use.

Monitoring the quality of internal controls involves an organization’s audit committee, executive management, and operating management. The audit committee’s role can include ensuring that the organization follows these best practices:

  • Implement and communicate a code of ethics.
  • Establish a fraud-prevention program.
  • Establish and communicate a whistleblower policy, including these steps:
    • Keep the message simple.
    • Consider using a toll-free ethics hotline maintained by a third party (for some organizations, less than $1,000 per year).
    • Consider whether communications are required in multiple languages.
    • Implement a way to track the reported events, investigations, and resolutions.

RSM McGladrey uses the following questions to assess general audit committee effectiveness, including compliance with the Sarbanes-Oxley Act (SOX):

  • Are a sufficient number of audit committee meetings held, and are the meetings of sufficient length and depth to cover the agenda and provide healthy discussion of issues?
  • How does the audit committee constructively challenge management’s planned decisions, particularly in the area of financial reporting, and probe the evaluation of past results?
  • Are regular meetings held between the audit committee and the CFO, the chief audit executive (CAE, the leader of internal audit team) other key members of the financial management and reporting team, and the independent auditors? Are executive sessions conducted on a regular basis?
  • Does the audit committee receive key information from management with sufficient time in advance of meetings to prepare for discussions at the meetings?
  • Does a process exist for informing audit committee members about significant issues on a timely basis and in a manner conducive to the audit committee having a full understanding of the issues and their implications?
  • Is the audit committee informed about personnel turnover in key functions, including the audit team (both internal and the independent auditors), senior executives, and key personnel on the financial accounting and reporting teams? Are unusual employee turnover situations observed for patterns or other indicators of problems?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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