4.5. The Audit Committee and external audit

External auditor independence in the public sector does not present the same challenges for an Audit Committee in the private sector, given the legislative requirements supporting the independence of external audit. [38]

To have an effective relationship between the Audit Committee and external audit, there should be a mechanism in place to facilitate an open and frank exchange of information between committee members and external audit throughout the year. Audit Committee members should be in a position to be able to openly discuss matters of interest in a sensitive manner with the external auditors in any areas covered by the Committee’s functions.

External audit coverage

The Audit Committee should be briefed on the proposed external audit coverage and fully consider:

• the financial statement areas of audit focus, the assessment of entity risks, and associated fees (where applicable);
• proposed performance audit coverage;
• any potential overlap with internal audit coverage; and
• the impact on internal entity resources and management effort.

It is expected that the Audit Committee would review all substantive correspondence from external audit about planned audits, audits in progress, and completed audits, and extend a standing invitation for the external auditor to be present at each committee meeting for all agenda items (with the exception of members-only sessions that the Committee may hold periodically). Being present at each meeting as an observer allows the external auditor to obtain a better understanding of an entity’s operations and risks and, among other things, enables external audit to provide a status report on audit activity and to provide input for the committee’s deliberations.

The Audit Committee should obtain a briefing from external audit on the results of their audit of the financial statements. The committee should also be briefed periodically on the results of any performance audits or assurance reviews undertaken.

Where external audit utilises the services of a third party service provider, an Audit Committee may wish to consider the steps necessary to gain assurance that there is no conflict of interest with respect to the work undertaken by a third party service provider. In some cases, this could include the Chair, or other nominated member, attending presentations by tenderers during the tender process. Audit Committees should also obtain periodic assurance that any new contractual arrangements between the entity and the third party service provider do not result in conflicts of interest.

Each year, the Audit Committee should review its relationship with external audit and any third party service provider engaged by external audit. The review should include providing feedback on the service provided, and on the effectiveness of communication and reporting between external audit, the committee, internal audit and management.

Audit Committee members-only session with external audit

It should be standard practice for the external auditor to meet alone with the committee members at least once a year.

Having a private session with external audit representatives provides an important opportunity for the committee to raise issues, ask questions and seek feedback from external audit without internal audit or management observers present.

Part 3 includes a checklist of matters the Audit Committee may wish to discuss with external audit at this session (page 109).

 

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