AC oversight of auditors, while viewed by most ACs as effective, continues to pose challenges for ACs in a number of areas.
Because external and internal auditors play a vital role in the financial reporting process, effective oversight of auditors is a core responsibility of the audit committee.
Under the Sarbanes-Oxley Act (SOX), the AC of all U.S. public companies is “directly responsible for the appointment, compensation, and oversight” of the external auditor, including the resolution of any disagreements between management and the auditor regarding financial reporting matters. In fact, many ACs are emphasizing their ownership of hiring and firing decisions regarding the external auditor. A good working relationship between the audit committee chair and the lead audit engagement partner is essential—both to the AC’s effectiveness and to the effectiveness of the engagement team.
An important responsibility of the AC chair is to ensure that the AC devotes sufficient time to:
AC chairs often help to clarify the role of IA:
AC chairs need to be consulted on CAE performance, compensation, and hiring and firing decisions.
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