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Members of the audit committee should engage with the CAE regularly to maintain a reporting relationship that is both substantive and communicative.
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They should support the CAE, providing guidance and assistance when he or she reports potential management lapses. It is important for the audit committee to see that the internal auditors have not only appropriate independence but also stature in the organization, and are visibly supported by senior management.
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The CAE should be candid in raising concerns with the audit committee when they arise. The audit committee should challenge the CAE and the internal audit department by setting high expectations, expressing those expectations clearly, and holding the department accountable for meeting them. In support of these expectations, the audit committee and the CAE should have a strong relationship characterized by open communication.
#Audit committee oversight process free#
This reporting relationship also encourages the free flow of communication on issues and promotes direct feedback from the audit committee on the performance of the chief audit executive (CAE). In line with this, the CAQ continues to encourage robust audit committee disclosures in proxy statements to promote high-quality performance by public company auditors and investor trust in the audit committee’s oversight role.When the internal audit function reports to the audit committee, it allows the internal auditors to remain structurally separate from management and enhances objectivity. Transparency and disclosure are key elements of trust in the financial reporting system. Similarly, we believe that a focus on disclosure of the multiple additional ways audit committees oversee the external auditor contributes to audit quality. Those audit committees who disclose their involvement in the engagement partner selection tend to be more engaged in the process. The oversight by the audit committee of the selection of the engagement partner is therefore critical to audit quality.Īudit committees more involved in the engagement partner-selection process help ensure the selection of a more rigorous engagement partner. The engagement partner is a critical component of audit quality. Greater transparency into the audit committee’s activities through disclosure provides investors with information about how the audit committee’s oversight role contributes to investor protection.Ī 2021 study found that disclosure around the audit partner selection process is positively associated with audit quality. This model – as required by the Sarbanes-Oxley Act – enhances audit quality.
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Independent audit committees are directly responsible for the oversight of the work of external auditors, including their appointment and compensation. The oversight role of independent audit committees is vital to investor protection.