Audit Committees Definition

1
Audit Committees - Definition

• Subcommittee of the Board of Directors
• Usually 3 to 5 members
• Majority must be outside (non-officer)
  directors
• Mandatory for publicly traded companies

2
Communication Auditors Responsibility

• Ask about matters to be communicated with the
  committee - confirm in writing
• Keep copies of written communications
• Take notes about oral communications
• Read the Minutes of meetings

3
Communication Committees Expectation

• Auditor will report on
• illegal acts
• significant, unusual transactions
• transactions which increase risk to the entity
• actions which might cause embarrassment to the
  entity if they became public

4
Communication Responsibility Under GAAS

• Financial statements covered by report
• Responsibility of management re financial
  statements and notes
• Responsibility of auditor - audit opinion
• Reasonable assurance and materiality
• Audit includes
• assessing risk
• examining evidence on a test basis
• assessing estimates
• study and evaluation of internal control
• objective opinion on fairness in accordance with
  GAAP

5
Communication The Audit Plan

• General approach e.g., location of inventory
  counts
• Materiality and risk levels (caution here)
• Extent of work re internal controls
• Areas of concern to committee or auditor
• Extension of scope requested of auditor
• Reliance on other auditors, specialists, internal
  auditors
• Other - related party transactions, illegal acts
• Timing of the audit

6
Final Communication

• Financial statements and report
• Significant weaknesses in internal control
• Illegal acts, fraud, unadjusted errors
• Changes in accounting policies
• Accounting for significant, unusual transactions
• Disagreements with management
• Difficulties in performing the audit