Posting by John Merchant

If you have been appointed to an Audit Committee, you may be wondering what information the auditors will normally provide and what questions you should ask.

There are certain “required communications” that an auditor should routinely provide to the Audit Committee as part of an audit conducted in accordance with generally accepted auditing standards (GAAS). In addition to these required communications, there are questions that you should ask to help assure your understanding of the audit process. This is the second part of a seven part series that presents a discussion of those communications.

Most Audit Committee members understand that they should meet with the auditors at the conclusion of the audit, but many do not realize that certain communications should occur before the audit begins. Some of the matters to be communicated at the beginning of the process are as follows.

  • Does your organization have an internal auditor (or internal audit department)? If so, does the independent auditor plan to use the internal auditor, or work performed by the internal auditor, as part of gathering audit evidence to support an opinion on the financial statements?
  • Does the Audit Committee or the Board have specific areas of concern? Such concerns may revolve around processes, personnel or financial reporting. Auditors are generally interested in knowing about such concerns and will use that information in planning the audit. The Audit Committee should communicate any concerns to the auditor early in the process and ask the auditor to specifically address those concerns and be prepared to discuss any related testing and findings at the conclusion of the audit.
  • Will the auditor be available for communication during the audit? The answer to this question should be YES. A two-way dialog between the auditor and the Audit Committee should enhance the understanding of issues by both parties and make the audit more meaningful for the Audit Committee.
  • Will the auditor provide a draft of the financial statements, including all note disclosures, prior to issuing an opinion on those statements? The Audit Committee should be prepared to review a draft copy of the financial statements prepared by management and audited by the independent auditor prior to finalization. In that way many basic questions can be asked and resolved. Sometimes these questions, and subsequent discussions, lead to changes in the way the statements are presented.

Part 3 of this series will begin a discussion of questions to ask when the auditors have completed their work and are prepared to issue their report.

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