Audit Committees: A Guide to Good Practice

The book "Audit Committees: A Guide to Good Practice" is a comprehensive guide published by the Australian Institute of Company Directors (AICD), the Auditing and Assurance Standards Board (AASB), and the Institute of Internal Auditors-Australia (IIA). Here is a detailed overview of the book:

Key Themes

1. Role and Responsibilities: The guide provides a practical introduction to the role and responsibilities of an audit committee, emphasizing its oversight of external audit, internal audit, risk management, and internal control and compliance.
2. Good Practice: It outlines good practice for audit committees, including the importance of clear roles and responsibilities, effective communication, and the assessment of an entity’s external financial and internal reporting requirements.
3. Legislative and Regulatory Framework: The guide reflects developments in audit committee practice, legislation, and guidance from regulatory bodies and leading global board practices since the previous edition was published in 2012.
4. Internal Audit Integration: The third edition incorporates a diagram showing the reporting structure of internal audit, enhancing clarity on functional relationships within the audit committee.

Plot Summary

The book is structured to assist boards and audit committee members in understanding their roles and responsibilities. It clarifies the expectations and accountabilities between the audit committee and other parties such as risk and compliance managers, internal auditors, and external auditors. The guide also assists in assessing the effectiveness of an entity’s risk management and internal control systems.

Critical Reception

The book has been well-received for its comprehensive coverage of audit committee practices. It is considered the most comprehensive guide of its kind, providing practical insights that are essential for ensuring the integrity of an entity’s financial reporting. The inclusion of a diagram showing the internal audit reporting structure has been particularly noted as an improvement in the third edition.

Key Responsibilities of an Audit Committee

1. Appointment and Assessment of Auditors:

   • The audit committee is responsible for appointing and assessing potential and continuing auditors. This includes understanding the audit tender or selection process, the auditor’s commitment to audit quality, the resources devoted to the audit, and the auditor’s reliance on experts and other auditors.

2. Facilitating the Audit Process:

   • The audit committee agrees on the audit fee and makes recommendations to the board. They may also recommend extending the rotation period of the auditor if appropriate.

3. Internal Control and Risk Management:

   • The guide emphasizes the importance of assessing the effectiveness of an entity’s risk management and internal control systems. This includes ensuring that the terms of reference for the audit committee are clearly defined in a formal charter to avoid overlapping roles with other committees.

4. Independence and Composition:

   • The majority of audit committee members should be independent directors, with at least one member having significant financial experience. The chairperson of the board of directors should not be the chairperson of the audit committee.

Overall, "Audit Committees: A Guide to Good Practice" is a seminal work that provides a detailed framework for establishing and managing effective audit committees, ensuring the integrity and quality of financial reporting.