Increasing complexity, new and lengthy technical rules, and high expectations from shareholders, regulators, the public and other stakeholders make overseeing the integrity of a company’s financial reporting a challenging area for audit committees. External auditors play a key role in helping audit committees address this responsibility. Audit committees will want to ensure they have a robust oversight process in place to get the most value from the external auditors.
Creating the right relationship requires continuous communication, open and candid dialogue, and the ability to raise and address sensitive issues. Trust is the foundation. How do you build such a relationship? Here are some leading practices:
Be active in selecting the lead audit partner. Play a key role in the external auditor’s assignment of the lead audit partner.
Set clear expectations. Discuss the audit committee’s expectations with the lead audit partner upfront.
Have regular meetings with the lead audit partner. In between audit committee meetings and in preparation for upcoming meetings, the audit committee chair should have informal one-on-one meetings with the lead audit partner
Make the most out of private sessions. Use unstructured time effectively to ask candid questions, inquire about sensitive topics and have confidential conversations.
Ask open-ended questions. Asking the external auditors open-ended questions can provide an understanding of their perspectives about sensitive and judgmental policies, accounts and transactions.
Go beyond the lead audit partner. It is important to build a relationship with someone at the audit firm other than the lead audit partner, for example, the senior relationship partner or quality review partner.