Tips from an Old Master

Tom Selling at The Accounting Onion surfaces some old notes on how to run an audit committee, as offered by an accounting luminary:

1. Audit committee member should limit themselves to two or three boards.
   
2. The committee should strive to maintain the appropriate 'tone at the top.'
   
3. A culture of compliance should continually be taught.
   
4. Continually evaluate how best to meet one's duties.
   
5. The corporation should have a compliance committee.
   
6. Stay current with legal and financial reporting requirements affecting the company.
   
7. Strive for collegiality and 'play nice' together.
   
8. Develop a formal policy for financial statement disclosure.
   
9. Access to both internal and external experts should be easy.
   
10. Develop effective relationships with management
    
11. Keep communications paths open and objective. The audit committee should have separate meetings with the internal and external auditors.
    
12. Keep in mind that the IFRS looks at public company disclosures.
    
13. Consult an outside expert for tax issues
    
14. Ask tough questions – make sure all of the questions raised are answered by the auditor to your satisfaction.
    
15. Be able to prove what you did; make sure that the minutes of your meetings reflect your actual diligence.

Who's the author? Why, this guy, of course.

Selling offers a 16th tip of his own:

audit the auditor. Yes, the PCAOB inspect audit firms and may select audits to review; and there are new PCAOB standards for supervisory review of the work of the audit team, but this is clearly not enough.

Tip 16 is, 'The auditor should be concerned that the audit committee might, at any moment directly examine some of its work.' Just as management's assertions should be subject to verification by the auditors, the assertions made to the audit committee by the auditors should be subject to verification. If the audit committee tells the auditor to do something, verify it was done. If the auditor stakes out a position on a sensitive issue, and if you are not an expert yourself on that issue, hire an expert to verify that the auditor's conclusion is the correct one.

"