On 24 April, the Board of the International Organization of Securities Commissions (IOSCO) published a consultation report on good practices for audit committees in supporting audit quality. The overall objective of the report is to assist audit committees of listed securities in promoting and supporting audit quality. Interested parties are invited to submit their views on the proposed best practices by 24 July 2018.
The Audit Committee is a subcommittee of the board of directors of a listed entity that oversees matters relevant to the integrity of the issuer’s financial reporting and supports the quality of audit. The IOSCO consultation report does not intend to establish the responsibilities of the entities’ governance bodies, as these are regulated by the national laws of the jurisdictions. IOSCO however considers that effective audit committees can support audit quality in the interests of market confidence by ensuring the quality, accuracy, integrity, and comparability of issuers’ disclosure.
IOSCO seeks stakeholders’ feedback on the proposals for good practices for the audit committees in conducting various activities: (i) recommending the appointment of an auditor to shareholders; (ii) assessing potential and continuing auditors; (iii) setting audit fees; (iv) assessing auditor independence; (v) assessing audit quality.
Among other recommendations, IOSCO highlights that the quality of audit should be the main guiding principle in the appointment of an auditor rather than the fee reduction or opinion shopping. Furthermore, audit committees should consider the auditor’s knowledge of the issuers business and industry as well as technical and specialist expertise. IOSCO encourages the committees to challenge the management’s accounting treatments and estimates and where appropriate seek advice from third parties rather than from the auditor. Committees should also have policies in place establishing the evaluation process of the auditors’ independence, including the auditor’s team members.
Furthermore, in February 2018, IOSCO concluded a consultation on its proposal to reform the international audit standard-setting process aimed at enhancing its responsiveness to the public interest. The reform should also address concerns about the independence of the standard-setting process and the perceived strong influence of the audit profession. Following the scrutiny of stakeholders’ comments, IOSCO intends to seek further feedback on its final proposals, transition plan and impact assessment of the suggested changes to the process.