The Audit Committee and Its Communication with Shareholders

Why did the auditor always carry a pen and notepad? He believed in “audit trails” and leaving no detail unrecorded.

During these weeks in Romania auditors are under time pressure for completing their work on the audit of the financial statements, especially for listed companies as there are deadlines for publishing 2023 financial statements and auditor reports.

In a listed company, the audit committee is the body responsible for overseeing the company’s relations with the external auditor, for checking the independence of the auditor and for having at least one meeting with the auditor without the management team.

Based on the best practice, there are several recommended questions that audit committee should address to the management and / or to the auditors:

·        What are the sources of the assurance received, and can these be considered objective?

·        Has the audit committee access to the information and any resources required to challenge management effectively and in an independent way?

·        Is the internal audit plan aligned appropriately to the risks of the business?

·        Has the audit committee satisfied that the external auditor is independent, including in the context of provision of non-audit services?

·        Is management responsive to the recommendations from external audit, and are action points addressed in a timely manner?

·        How the auditor explains the risks how these have been addressed?

·        What are the key audit firm and network level controls the auditor relied on to address the identified risk?

·        Has the auditor met the agreed audit plan? What were the reasons for any changes?

·        How the conduct of the audit took place from key people involved point of view?

·        What are the items included in the external auditor’s management letter and how the management responded to them?

·        What questions shareholders addressed and what responses they received?

The role of the audit committee is to ensure that shareholder interests are properly protected in relation to financial reporting and internal control, and it needs to be prepared to meet investors and give explanations.

The audit committee should present in the annual report at least the following matters:

• a summary of the role and work of the audit committee

• how the audit committee composition requirements have been addressed, and the names and qualifications of all members of the audit committee during the period

• the number of audit committee meetings

• how the audit committee’s performance evaluation has been conducted and if there was a third party involved in such evaluation process

• an explanation of how the committee has assessed the effectiveness of internal audit and satisfied itself that the quality, experience, and expertise of the function is appropriate for the business

• a description on situations where the auditor has challenged management and the result of those challenges

• feedback from external sources including investors, and

• the significant issues that the committee considered.

The chair of the audit committee is expected to be present at the annual general meeting and to the periodical discussions with investors to answer questions on the audit committee’s activities.