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public-sector-audit-committee-webinar

14 pages
Public Sector Audit CommitteesPresented by: Dennis W. Yockey, PartnerDate: January 19, 2011Participant Applicability • This presentation should be of value to the following– Governmental entities with existing audit committees– Governmental entities contemplating formation of an audit committee– Governmental entities with committees functioning, in part, as an audit committee– Non-governmental entities seeking to learn more about best practices of an audit committee2Objectives of Presentation• Objectives include addressing the following questions– Why have an audit committee?– Who should be responsible for the formation of an audit committee?– What type of structure should an audit committee have?– What should the role of an audit committee be?3Why Have An Audit Committee• Constituents of public sector entities are becoming increasinglyinterested in government’s Governance Transparency Accountability Efficiency4Why Have An Audit Committee• Oversight bodies have recognized the role of audit committees• Statement on Auditing Standards No. 114, The Auditor’s Communication With Those Charged With Governance (December 2006)• Government Accountability Office’s Government Auditing Standards(July 2007 Revision)• Sarbanes-Oxley Act of 2002• 1999 Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees5Why Have An Audit Committee• SAS 114 Those charged with governance- “For entities with a board of directors, ...
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Public Sector Audit Committees
Presented by: Dennis W. Yockey, Partner
Date: January 19, 2011
Participant Applicability
• This presentation should be of value to the following
– Governmental entities with existing audit committees
– Governmental entities contemplating formation of an audit committee
– Governmental entities with committees functioning, in part, as an audit
committee
– Non-governmental entities seeking to learn more about best practices of
an audit committee
2
Objectives of Presentation
• Objectives include addressing the following questions
– Why have an audit committee?
– Who should be responsible for the formation of an audit committee?
– What type of structure should an audit committee have?
– What should the role of an audit committee be?
3Why Have An Audit Committee
• Constituents of public sector entities are becoming increasingly
interested in government’s
 Governance
 Transparency
 Accountability
 Efficiency
4
Why Have An Audit Committee
• Oversight bodies have recognized the role of audit committees
• Statement on Auditing Standards No. 114, The Auditor’s
Communication With Those Charged With Governance (December
2006)
• Government Accountability Office’s Government Auditing Standards
(July 2007 Revision)
• Sarbanes-Oxley Act of 2002
• 1999 Blue Ribbon Committee on Improving the Effectiveness of
Corporate Audit Committees
5
Why Have An Audit Committee
• SAS 114
 Those charged with governance- “For entities with a board of directors,
this term encompasses the term board of directors or audit committee
used elsewhere in generally accepted auditing standards”
 “When governance is a collective responsibility, a subgroup, such as an
audit committee or even an individual, may be charged with specific
tasks to assist the governing body in meeting its responsibilities”
6Why Have An Audit Committee
• SAS 114
 “Audit committees (or similar subgroups with different names)
exist in many entities. Although their specific authority &
functions may differ, communication with the audit committee,
where one exists, is a key element in the auditor’s
communication with those charged with governance.”
7
Why Have An Audit Committee
• SAS 114
 “Good governance principles suggest
 The auditor has access to the audit committee as necessary
 The chair of the audit committee &, when relevant, the other
members of t committee, meet with the auditor periodically
 The audit committee meets with the auditor without management
present at least annually”
8
Why Have An Audit Committee
• Government Auditing Standards
 “Those charged with governance have the duty to oversee the strategic
direction of the entity. This includes overseeing the financial reporting
process, subject matter, or program under audit including related
internal controls.” “In some audit entities, multiple parties may be
charged with governance, including oversight bodies, members or staff
of legislative committees, boards of directors, audit committees, or
parties contracting for the audit.”
9Why Have An Audit Committee
• Sarbanes-Oxley (SOX)
 “Each registered public accounting firm that performs for any
issuer any audit required by this title shall timely report to the
audit committee of the issuer
1) All critical accounting policies & practices to be used
10
Why Have An Audit Committee
• Sarbanes-Oxley (SOX)
2) all alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management officials of the issuer,
ramifications of the use of such alternative disclosures &
treatments, & the treatment preferred by the registered public
accounting firm; &
11
Why Have An Audit Committee
• Sarbanes-Oxley (SOX)
3) other material written communications between the registered
public accounting firm & the management of the issuer, such
as any management letter or schedule of unadjusted
differences”
12Why Have An Audit Committee
• 1999 Blue Ribbon Committee on Improving the Effectiveness of
Corporate Audit Committees
– Report was “geared toward effecting pragmatic, progressive changes in
the functions & expectations placed on corporate boards, audit
committees, senior & financial management, the internal auditor, & the
outside auditors regarding financial reporting & the oversight process”
13
Why Have An Audit Committee
• Audit committees can be a valuable resource to governing
bodies
 Governing bodies are generally comprised of elected or
appointed officials
 have a wide array of responsibilities
 often have members who do not have
familiarity with audit process or governmental auditing/reporting
standards
14
Why Have An Audit Committee
• Governing bodies (those charged with governance) are
responsible for overseeing strategic direction of entity & have
obligations related to accountability of entity
– Includes overseeing financial reporting process
15COMMUNICATION FLOW
GOVERNING BODY
AUDIT COMMITTEE
INTERNAL AUDITORS
EXTERNAL AUDITORS MANAGEMENT
16
Who Should Be Responsible For Formation Of
An Audit Committee
• Governing body should be responsible for forming an audit
committee
 Document establishment of an audit committee in minutes
 Appoint members of audit committee
 Generally 3 to 7 members
 Must possess technical expertise
 At least 1 member should be a financial expert as referenced under SOX
 Other members should possess investing, accounting, legal, banking or
CFO/COO experience
17
Who Should Be Responsible For Formation Of
An Audit Committee
 Appoint members of audit committee
 Members should be independent of management & typically include
 Members of governing body
 Members outside the government
 Members of internal audit, if independent of management
 Governing body should select first Chairperson of committee or Chairperson
may be predetermined by charter or other governing document
18Who Should Be Responsible For Formation Of
An Audit Committee
• First task of Audit Committee should be creation of a Charter for
the committee
 Proposed charter should be approved by governing body
19
What Type Of Structure Should An Audit
Committee Have
• Audit committee’s charter sets forth its structure & purpose &
should address
 Size of audit committee
 Qualifications required to serve on audit committee
 Who appoints new members to committee
 Length of terms of committee members
20
What Type Of Structure Should An Audit
Committee Have
• Audit committee’s charter sets forth its structure & purpose &
should address
 Frequency & location of meetings (normally no less than 4
meetings annually)
 Manner & frequency of appointing subsequent chairpersons if
not otherwise specified in other governing documents
21What Should The Role Of An Audit Committee Be
• Responsibilities of committee should be set forth in charter
 Selection of external auditor, including evaluation of
qualifications, approval of fees, approval of nonaudit services,
signing of engagement letter, etc.
 Receive communications from external auditor under SAS 114
regarding an overview of scope and timing of audit (pre-audit
letter)
22
What Should The Role Of An Audit Committee Be
• Responsibilities of committee should be set forth in charter
 Provide information to external auditors during audit planning
process regarding any risk areas of concern or other areas of
emphasis deemed appropriate based on information available to
committee
 Participate in SAS 99 interviews conducted by external auditors
23
What Should The Role Of An Audit Committee Be
• Responsibilities of committee should be set forth in charter
 Review draft financial statements & discuss drafts with
management and external auditors
 Discuss SAS 114 report, SAS 115 letter, Single Audit Reports
and any other reports issued by external auditors with external
auditors and management
24What Should The Role Of An Audit Committee Be
• Responsibilities of committee should be set forth in charter
 Report results of all meetings with external auditors to governing body &
answer any questions governing body might have
 Periodically meet with management throughout year to
o Ascertain status of corrective actions planned to correct control deficiencies,
significant deficiencies or material weaknesses outlined in prior SAS 115 &
Single Audit reports
25
What Should The Role Of An Audit Committee Be
 Periodically meet with management throughout the year to
o Discuss with management its risk assessment as defined in SAS
109, including actual or planned changes in internal control
structure during the year, most significant risks it has identified,
steps it has taken to mitigate known risks & level of risk it believes
is acceptable given cost/benefit nature of a control system
26
What Should The Role Of An Audit Committee Be
 Periodically meet with management throughout year to
• Discuss other matters of governance interest as contemplated by SAS 114,
paragraph 9
• Discuss changes in organizational structure that might impact system of
internal controls & inquire regarding changes in task assignments
implemented to address those changes
• Meet with legal counsel to discuss status of pending & existing lawsuits,
environmental matters, etc., as well as proposed or enacted regulatory
changes & potential impact on organization
27What Should The Role Of An Audit Committee Be
• Responsibilities of committee should be set forth in charter
– Monitoring & resolving “whistleblower” submissions & policy
administration
– Authority to engage external resources (consultants) when warranted
28
Example
• City & County of Denver’s Audit Committee
– Prior to January 1, 2008, Denver’s Audit Committee members were
appointed solely by Mayor of the City & included employees of City
Administration
– Effective January 1, 2008, Denver citizens voted to change City Charter
to form a truly independent Audit Committee
29
Example
• City & County of Denver’s Audit Committee
– 7 member committee with City Auditor serving as Chair of Audit
Committee
– 2 members are appointed by City Auditor, 2 members are appointed by
Mayor & 2 members are appointed by City Council
30