This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.

Bookmark Email Print page

Communications

Overview

The importance of timely and candid communication between the external auditor, management and the audit committee cannot be understated. This communication is imperative to allow each of these groups to understand what is expected and required of them to enable each group to effectively fulfill their responsibilities.

The board of directors and the audit committee should take responsibility to ensure that the lines of communication are open. They should take steps to ensure that the independent auditor can communicate directly with the audit committee regarding any issue or concern that may arise in the course of his or her work, either orally or in written form. Deloitte has found that, in many instances, informal communication with the audit committee may be just as important as formal meetings in maintaining open lines of communication.

Leading practices

In order to facilitate the communication of audit committee with independent auditor, we have assembled several leading practices in the following areas:

Regular meetings 

The chairperson of the audit committee must be available to the external auditor on a regular basis. In our experience, an effective way to ensure this is for the chairperson to establish a regular series of face-to-face sessions prior to each audit committee meeting:

  • The first session should be with the CFO to create the proposed agenda for the audit committee meeting, and to agree on information that will be provided to the committee.
  • The second session should be with the external auditor alone to obtain the auditor's input on the agenda, discuss any concerns he or she may have and discuss the auditor's views on the progress of the audit.
  • The third session should be with the external auditor and management together. This meeting's purpose is to finalise the agenda, review the materials management has prepared, enable the chairperson to explore more fully any differences of opinion that may exist between management and the auditor, and determine how to present these matters to the audit committee.
The audit committee work plan 

Another responsibility of the chairperson is to work with the external auditor and management to create an audit committee work plan for each fiscal year. This work plan should include regular matters that come before the committee in accordance with its charter, and any other matters of significant concern or interest that the chairperson, management and/or the external auditor believe the committee should be aware of and should discuss.

The audit committee work plan should include an educational component. We recommend that it include subjects such as:

  • a tour of the balance sheet
  • an analysis of the income statement
  • a review of major subsidiaries
  • a discussion of financing vehicles
  • a series of presentations on the business of the company
  • a review of special corporate projects, such as a major information technology initiative or a new acquisition
  • a review of new accounting and other external developments.
Interaction with the audit firm 

It is important to the success of the audit committee's relationship with the external auditor that the chairperson be consulted with respect to the senior audit team members assigned to the corporation. The chairperson should get to know the lead audit partner and his or her senior team members. This allows both parties to develop a sense of each other's working style and should help to promote both confidence and respect for the responsibilities of each party. It also establishes an environment in which clear, direct and candid communication can not only take place, but can flourish.

It is equally important that the chairperson establish a relationship with the CEO or senior partner of the audit firm engaged by the board. If this is not appropriate due to either the size or location of the company, then the relationship should be forged with another senior management partner of the firm.

Establishing these channels of communication permits ease of access when issues arise that require either consultation or intervention with or at the highest levels of the audit firm.

Evaluation of the external auditor 

An important responsibility of the audit committee is to evaluate the external auditor's performance. Although the audit committee should bear the responsibility for ultimately assessing the auditor's performance, it should solicit the input of management. The assessment should cover the professional competencies in conducting the audit, value-added recommendations made by the auditor, and client service issues. This process should be formalised by the audit committee and conducted annually.

Learn more

  • Guideline for gathering information about the external auditor
    Questions to ask
  • Checklist for the audit committee's private session with the external auditor
    Topics to discuss
Share your comments

 

Stay connected