With governance advocates calling for more transparency from public company audit committees, the Investor Advisory Group of the Public Company Accounting Oversight Board has suggested that external auditors review the effectiveness of audit committees.

In a report presented to the PCAOB earlier this week, the IAG noted that organizations including the National Association of Corporate Directors and the Center for Audit Quality have recently endorsed enhancing audit committee reporting to strengthen investor confidence and communication.

“The work of the audit committee could be more transparent, and the evaluation of the auditor’s work could be more specific,” Robert Tarola, a member of the IAG, said at a board meeting on Monday, according to Compliance Week. “The independence of each could be made more clear.”

It might seem contradictory for auditors to assess the effectiveness of the entity that hires them. But the advisory group said input from auditors could be required as “a critical part” of reviewing a company’s controls over financial reporting.

The PCAOB meeting was attended by U.S. Securities and Exchange Commission officials including Chair Mary Jo White, who said the agency expects to issue perhaps early next year a concept release exploring possible ways of enhancing the work of audit committees.

“I can’t overstate the importance of the audit committee functioning at the highest possible level,” she said.

Ernst & Young recently reported that the majority of audit committees at Fortune 100 companies are disclosing more information than in years past, especially about their assessment of their outside auditing firm, and that some companies are also improving the accessibility of the audit committee charter.

In connection with its 2012-2016 strategic plan, the PCAOB has been looking into “enhancing the ability of audit committees to evaluate the independence, objectivity and skepticism of their auditors … [and] in finding ways for the PCAOB and audit committees to collaborate on efforts to enhance communication and interaction with investors.”

Source: Compliance Week SEC Plans Early 2015 Concept Release on Audit Committee Upgrades

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One response to “Investors Suggest External Auditor Review of Audit Committees”

  1. The effectiveness of the work of the audit committee should be certainly be reviewed as part of a regular board evaluation process, but it is a clear conflict of interest for this to be done by the auditor given the role of the audit committee in appointing and assessing the effectiveness of the auditor, although they should be asked to contribute to the review.

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