Audit committees have to cover a wide range of issues. Time is limited, so asking the right questions is critical. Our audit committee questions series offers key questions for audit committees to consider.

Audit committee meetings, members and effectiveness

  • Audit committee induction and onboarding: For any new director — particularly when joining the audit committee — a learning curve comes with the territory. Just how steep that learning curve is and how quickly a new director is able to contribute meaningfully to committee meetings, hinges directly on the quality of the induction and onboarding process.
  • Audit committee self-assessment: The audit committee should regularly assess its own performance – and the adequacy of its terms of reference, work plans, forums of discussion and communication – with a view to highlighting skills and/or knowledge gaps and identifying areas in which the committee and its processes might be more effective.
  • Chairing an audit committee: Audit Committee effectiveness hinges on the chair’s effectiveness. A successful audit committee chair should understand the importance of relationships with management, the auditors and others.
  • Effective conversations: Getting the ‘right conversation’ around the audit committee table is an essential component of audit committee effectiveness
  • Getting the right information: For audit committees to be truly effective, it is imperative to have both timely access to, and an understanding of, all the relevant information they need to carry out their responsibilities.

Audit committee responsibilities

  • Accounting policies, judgments and estimates: Financial transaction and accounting issues have reached an unprecedented level of complexity. Subjective accounting standards and challenging economic and regulatory environments, together with ongoing pressure on management to “make its numbers”, have put a premium on “getting the numbers right”.
  • Assessing the system of internal control: Audit committees play an important role in overseeing an organization’s internal control processes. Effective audit committees perform their oversight by demanding relevant, timely and accurate information from management, the internal auditor and the external auditor, and by asking direct and challenging questions.
  • Narrative reporting and non-GAAP measures: The integrity of the financial statements and the systems generating the information reported in the financial statements receives a lot of attention from management, internal audit and external audit. The same is not always true for non-GAAP measures and various narrative reporting disclosures provided to investors and other stakeholders.
  • Oversight risk: Companies have become much more risk conscious and their management and oversight more risk-driven. Not surprisingly, the audit committee’s time commitment in this respect has increased substantially over the last few years. A thorough review of the effectiveness of the audit committee’s review process deserves a dedicated place on its agenda.
  • Reviewing and assessing financial statements: The audit committee has an important oversight role in providing the board with assurance as to the propriety of the financial reporting process. Reviewing and assessing the financial statements remains a critical last step in the committee’s financial reporting oversight activities.

External audit

  • Effectiveness of the external auditor: The evaluation of external audit effectiveness is subject to increased regulator and investor focus. Not only is it core to the audit committee role – the committee must be satisfied that the audit is effective – but it can have an impact on any recommendations around audit tendering and/or rotation.
  • External audit scope: In the current environment, audit committees, regulators and other stakeholders are sharpening their focus on audit quality. A thorough review of the audit plan is an essential starting point to ensure audit quality is at the level it should be.
  • Private sessions with the external auditor: Meeting the external auditor in a private session where management is not present allows the auditor to provide candid, often confidential, comments to the audit committee.

Internal audit

  • Effectiveness of the internal audit function: An effective internal audit function can have a positive impact on the control environment of an organization and the effective design and operation of internal control. The audit committee should regularly evaluate the effectiveness of the internal audit function to ensure that the benefits to the organization are optimized.
  • Internal audit scope: The role that internal audit can play within an organization can be significant and of high value to the audit committee. The scope does not need to be limited to providing the audit committee with assurance over the controls implemented by management and can head towards a ‘consultancy’ role, providing strategic support to the audit committee and company. Establishing the ‘right’ scope for the internal audit function is not a ‘one size fits all’ exercise.
  • Private sessions with the head of internal audit: Meeting the head of internal audit in a private session allows the audit committee to ask questions other than relating to the internal audit plan. Nevertheless, the head of internal audit might, as a result of his work, have valuable views and opinions.


About the BLC

The Board  Leadership Center offers non-executive and executive board members and those working closely with them (including CROs and Heads of Internal Audit) a place within a community of board-level peers and access to topical seminars and ‘lunch and learn’ Board Academy sessions, invaluable resources and thought leadership, and lively and engaging networking opportunities.