Role of the audit committee

Role of the audit committee

The audit committee is a central pillar of effective corporate governance and is in the best position to offer effective oversight of the performance, independence and objectivity of the auditor and the quality of the audit. The audit committee’s role is also something we believe can be built upon.

But unlike some proposals now being considered that would enforce mandatory auditor changes, we propose the introduction of a periodic comprehensive review of auditor performance and quality of the audit by the audit committee.

Our proposal – highlights

Such a review, if undertaken at least every five years, would allow the audit committee to:

  • Analyse changes over time which are not readily apparent from year to year, such as any impacts linked to tenure or cyclical events.
  • Consider future requirements over the medium to long term and any changes to its policies and procedures to increase its own effectiveness.
  • More clearly demonstrate the effectiveness and value of its oversight of the selection, independence, performance and quality of the audit and the auditor to shareholders and other stakeholders.
  • Select or retain the audit firm it believes is most appropriate for the company.
  • Develop greater knowledge and insight about the audit and the auditor.
  • Give consideration to a broader range of approaches to meet their responsibilities including.

We believe periodic review is a more appropriate and effective approach than measures such as mandatory change – which we believe would undermine the audit committee’s role by limiting its freedom to decide which audit firm best meets the company’s and shareholders’ needs – which, in turn – would restrict the committee’s ability to offer good governance.

In this Point of View, we take a deeper look at the benefits of a periodic review and how it should be considered as part of a wider ‘package’ of changes that we have proposed in previous PoV papers, including:

  • Ensuring strong, independent national regulators of the profession.
  • Enhancing transparency about the audit and the auditors.
  • Restricting those non-audit services that could impair an auditor’s independence.

Read our latest PoV for more information on the role of the audit committee.