Audit quality … how is it related to audit committee?

       When talking about auditing, auditor and audit firm are among first choices that may come up to people’s mind. This is not a surprise because they are those who are directly dealing with the task. But is there anything else?

       At IOD, we would like you to think about the process. Who selects and proposes the name of the shortlisted auditor for appointment during stakeholders’ meeting? Who else takes the role in reviewing financial audit report and making sure it is correct and sufficient apart from the auditor?  “The audit committee” is surely the answer. The question is “to what extent the audit committee is involved with the audit quality?”

      The audit quality will be seen when having a good-quality auditor who can work effectively. It is the role of the audit committee to consider, select an independent person to take a duty as the auditor. As an external representative, the auditor takes a key role in the audit for transparency of business operation.  Auditor appointment and remuneration rate have become the key topics during the stakeholders’ meeting.

       Looking back 20 years, meeting agenda involving the audit committee only covered list of names and audit fee. According to the CGR assessment in 2019, 99% of Thai-listed companies provided names, reasons for auditor selection and information about remuneration rate. However, some companies may still give unclear reason for auditor selection. IOD therefore encourages the audit committee of each listed companies to study on the auditor selection guideline produced by the Securities and Exchange Commission (SEC). The guideline includes the following areas. 1. priority on the audit quality 2. sufficient and suitable human resource management 3. participation of auditor in examining team 4. discretion of professional auditor, and 5. independence of auditor

       Prior to final selection of any audit firm, the audit committee should ask the audit firm for a result report of quality control assessment for consideration together with other documents. This report will enable the audit committee to find out which firm already passed the SEC assessment. And the audit firm is also required to supply the audit committee its firm report.

        If the audit committee uses the report for consideration when selecting the auditor, it is expected that a good quality, credible auditor will be selected and the stakeholders is convinced to give a nod during the meeting. However, the audit committee must bear in mind that the selected auditor must be approved by the SEC and the audit firm that meet the qualifications stated in the TOR following the system of audit quality control. The five-year contract break will also be applicable to the auditor selected to work for seven consecutive years.

       The audit quality will occur when the audit committee works together with the auditor in reviewing financial report to ensure precision and sufficiency. Recommendation for the audit committee is available at the “SEC guideline questions for the audit committee for the benefits of audit quality”.

       What is interesting in the guideline is case studies on usual financial audit, in-depth examination on the list between businesses and related individuals, and in-depth report on critical businesses. Each featured case provides recommendations from planning steps to audit steps based on fiscal and annual bases.

       Apart from these roles, the audit committee can support audit quality on several occasions. IOD encourages you to look into details at the corporate report by SEC and International Organization of Securi​ties Commissions (IOSCO)regarding good practice for the audit committee.

      IOD is planning to distribute information about audit firms and audit fees of Thai-listed companies for example a list of audit firms frequently selected by listed companies for providing services, difference of audit fees based on types of industries. IOD also has plans to improve the audit committee handbook. Stay tuned for more details from IOD.