Global securities regulator consults on audit committee good practice

The board of the International Organization of Securities Commissions (IOSCO), the global standard setter for securities regulation, is seeking feedback on its proposed good practices to assist audit committees in supporting audit quality

The board of the International Organization of Securities Commissions (IOSCO), the global standard setter for securities regulation, is seeking feedback on its proposed good practices to assist audit committees in supporting audit quality.

The regulator says the findings of reviews by audit regulators indicate a need to improve audit quality and consistency of audit execution. While the auditor is primarily responsible for achieving this objective, IOSCO believes that effective audit committees can also contribute to supporting audit quality and increasing market confidence in the quality of information in financial reports.

Its consultation report proposes good practices regarding the features that an audit committee should have to be more effective in its role, including defining the qualifications and experience that audit committee members should possess. These features include their level of knowledge in the field of financial reporting and audit, and whether they have questioning minds and appropriately challenge management and auditors, as well as whether the audit committee has adequate capacity and resources.

The report also outlines good practices that audit committees may consider when recommending the appointment of an auditor to members/shareholders; assessing potential and continuing auditors; assessing the audit fees; facilitating the audit process; communicating with the auditor; assessing auditor independence; and assessing audit quality.

On the question of auditor selection, the proposal suggests audit committees should develop a recommendation on the selection of auditors independently of management with selection criteria set upfront and tenderers assessed against those criteria. The focus should be on audit quality and not fee reduction.

As regards setting audit fees, it is proposed that audit committees consider the extent to which audit fees are consistent with the audit plan and a quality audit.

The good practice guidelines outline the audit committee’s role with respect to promoting quality and timely reporting, seeking explanations and advice on the appropriateness of accounting treatments and estimates, proper books and records, and systems and controls, which can facilitate a quality audit and avoid issues being missed or not adequately addressed due to deadline pressures.

IOSCO also wants audit committees to review and challenge management’s accounting treatments and estimates, and where appropriate seek independent third party advice and not seek advice from the auditor. The audit committee should oversee the development of policies on auditor independence, undertake procedures to satisfy itself on the independence of the auditor and require non-audit services to be subject to its prior approval, and consider other matters affecting auditor independence.

The report seeks feedback on the proposed good practices and the role of audit committees and audit quality. The deadline for comments is 24 July.

IOSCO Consultation Report on Good Practices for Audit Committees in Supporting Audit Quality is here.

Report by Pat Sweet

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