Corporate board and audit committee members are selected because of the valuable experience they bring to the table. However, the marketplace and the role of the audit committee are evolving in unprecedented ways. The Blue Ribbon Committee recommendations adopted by the stock exchanges emphasize the need for audit committees to strengthen their oversight process, including the evaluation, selection, hiring and firing of the external auditor. Moreover, each company has its own unique set of risks, opportunities and challenges that audit committees need to understand and evaluate. Given these factors, as well as the increasingly complex accounting rules, the risk to audit committees in carrying out their responsibilities is significantly greater than ever.
These are some of the tough questions many audit committees are asking themselves:
Do we have a process to assess the quality, not just the acceptability of accounting policies, financial reporting processes and internal controls?
Have we obtained an understanding of the processes used by management and external auditors to identify and monitor risk?
How are we assessing the effectiveness of the internal and external auditors?
How have we evaluated the independence of the external auditors?
Have we evaluated the quality of the finance, accounting and internal audit organizations?
How do we, as an audit committee, assess our own effectiveness?
Deloitte LLP recognizes these challenges and has developed a process to support the analysis and enhancement of audit committee effectiveness. We often work with management and the audit committee together to determine an organization's unique risks, opportunities and challenges that the audit committee needs to understand and evaluate.