IOSCO Surveys Audit Committee Oversight of Auditors

By Michael Cohn, Accounting Today

The International Organization of Securities Commissions has released a new report providing an overview of how audit committees around the world oversee audit firms, with an eye toward improving audit quality at public companies.

IOSCO’s Survey Report on Audit Committee Oversight of Auditors surveyed securities regulators in the Americas, Europe, the Asia Pacific, the Middle East and Africa. In many jurisdictions, the audit committee of a publicly listed entity plays a key role in appointing external auditors and overseeing the financial reporting process and external audits. The survey found that 96 percent of the 47 jurisdictions that responded to the survey require publicly listed entities to establish an audit committee or another similar governance body that is separate from the executive management and acts in the interest of investors.

A periodic assessment of auditor performance by the audit committee is required in 71 percent of the jurisdictions that responded to the survey, although the guidance provided to audit committees to consider in assessing auditor performance varies significantly by jurisdiction. Communications from the auditor to the audit committee are required in 80 percent of the responding jurisdictions. Requirements that audit firms provide transparency reporting exist in 61 percent of countries with developed capital markets, although only 15 percent of jurisdictions in growing and emerging markets have this requirement. Active involvement by shareholders in auditor selection is evident in many parts of the world, as 79 percent of the responding jurisdictions indicated they require a shareholder vote on auditor selection.

At least one member of the audit committee is required to be independent of both the management of the publicly listed entity and the auditor in 100 percent of the responding jurisdictions, while 76 percent of jurisdictions require a majority of audit committee members or all audit committee members to be independent. At least one audit committee member is required to have special skills or experience in 87 percent of responding jurisdictions.

Over 90 percent of the responding jurisdictions explicitly require the audit committee to be responsible for assessing the auditor’s independence.

The survey also highlighted an increase in the role and responsibility of the audit committee related to auditor oversight since 2004, when IOSCO last took stock of audit committee requirements.