Dealing with Your Audit Committee
To have your best audit season ever, you will want your dealings with the Audit Committee to be rock solid. This will save you time and money and demonstrate
your professionalism to senior management and the Board of Directors. Your success in dealing with your audit committee can be captured in two words: “No surprises.” You can pave the way to smooth interactions with some pro-active pre-planning. Here are four principles to keep in mind.
- Establish Ground Rules. You will first want to understand the audit committee’s audience, goals and rules of engagement. The Board establishes the Audit Committee to help the Board in oversee the company’s control environment. Special emphasis is on three areas: internal controls and financial reporting; the qualification and independence of the independent external auditors; and the performance of the company’s internal audit function and of external auditors.You will want to come to some agreement on key issues such as the definition of materiality. For example, you want to make sure there are no discrepancies in understanding of revenue recognition policies.
- Understand reporting structures, such as whether or not the internal auditors have direct functional reporting to the audit committee and an indirect line to management for administrative activities. Finally, be involved with the internal audit risk assessment and audit plans, including activities and objectives regarding Section 404 compliance, if applicable.
- Involve the Chair Early and Often. This is your most important relationship and you will want a “meeting before the meeting” with your Audit Committee Chair. While you’re at it, schedule regular meetings in the middle of field work and prior to the year-end audit committee meeting.
- Get Done What You Can. Make sure your schedules are done – ideally before the auditing firm is developing their audit plan. Also, start your own forward-looking identification of potential issues such as new accounting and reporting requirements. Provide input to management’s goal setting, and provide you own clear objectives and expectations for each meeting.Collaborate to develop and agenda for year-end audit committee meeting. You’ll both want to the meeting to run smoothly to reflect well on you both. Start by establishing and agreeing to all agenda items for discussion.