A coalition of seven organizations representing audit firms and directors (including the Center for Audit Quality (CAQ), Corporate Board Member/NYSE Euronext, and the National Association of Corporate Directors) has created a tool audit committees can use for their annual evaluation of the external auditor.
The evaluation tool includes sample questions on such areas as the quality of services and sufficiency of resources provided by the auditor; communication and interaction with the auditor; and auditor independence, objectivity, and professional skepticism. There is also a sample form for rating those three areas and an appendix that lists relevant requirements and standards. [To download the tool, read Audit Committee Annual Evaluation of the External Auditor.]
"The evaluation should encompass an assessment of the qualifications and performance of the auditor," the tool reads. It also emphasizes assessing the quality and candor of the auditor's communications with the audit committee and the company as well as the auditor's independence, objectivity, and professional skepticism.
PwC's 10minutes on audit committee effectiveness notes that effective audit committees promote financial reporting and audit quality by successfully interacting with management and the auditors, focusing on investor needs and being demanding, and going beyond communications required by governance and auditing standards. [For more details about the 10minutes publication, click here.]
PwC believes this evaluation tool can be helpful in facilitating robust dialogues between audit committees and auditors about audit quality in general. We also believe it will be helpful for audit committees to understand the investments firms are making in continuous quality improvements at a high level as well as engagement-specific enhancements based on quality indicators.
If you sat on an audit committee this past year, there's a good chance you spent more time working on committee activities than in previous years. There's also a better chance your company limits your service on multiple audit committees to three.
Those are the respective findings in the PwC Annual Corporate Directors Survey (Insights from the Boardroom -- Board evolution: Progress made, yet challenges persist) and Shearman & Sterling's 10th Annual Survey: Corporate Governance of the Largest US Public Companies 2012.
According to our corporate directors survey, more than one-third of respondents said their audit committee time commitment increased in the past 12 months. Of those who saw an increase, nearly half said the increase was 11-20%.
The Shearman & Sterling survey of the top 100 non-controlled public companies' proxy statements and corporate governance guidelines found that 68 of those companies have policies that limited their directors to serving on three audit committees. Thirty of the top 100 companies had no limits.
The survey cites the 2003 NYSE listing standard relating to simultaneous audit committee memberships as the reason for the high number of limitation policies.
For more information on the audit committee-results of the PwC Annual Corporate Directors Survey, you may want to visit our 2012 Annual Corporate Directors Survey web site.
The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) in a joint meeting in September directed their staff to conduct further analysis on certain items related to a new converged revenue recognition standard.
The two boards reached decisions on certain topics related to the constraint on recognizing variable consideration, collectibility, time value of money, and distributor and reseller arrangements. The boards asked their respective staff to conduct further analysis on such items as aspects of the variable consideration constraint and collectibility presentation issues.
It is expected that the boards will achieve a converged revenue recognition standard, as the same principles will be applied to similar transactions under both US GAAP and International Financial Reporting Standards (IFRS). A new standard is expected in the first half of 2013.
For more information on this project, you may want to read the following PwC publication: