On the list of director responsibilities, there are several that come to mind: monitor CEO succession, oversee long-term strategic planning, and establish and review executive compensation packages. What does not usually make the short list but has received significant attention lately is being a skeptic. Particularly in the oversight of financial reporting, directors have a critical responsibility to assess audit evidence with a questioning mind.
In the last two weeks, NACD has announced several resources to assist directors, especially those serving the audit committee, on enhancing independence, objectivity and skepticism in overseeing the external auditor. This week, the third episode in our webinar series on skepticism—produced with the Anti-Fraud Coalition of NACD, the CAQ, The IIA, and FEI—was released, titled “Skepticism and the External Auditor.” In this episode, moderator Michele Hooper is joined by Cindy Fornelli, executive director of the CAQ, and Greg Weaver, chairman and CEO of Deloitte and Touche LLP, to discuss leading practices in exercising professional judgment.
Last Thursday, NACD President and CEO Ken Daly attended the PCAOB’s third public meeting on auditor independence and audit firm rotation. At the request of Chairman Jim Doty, Daly voiced the views of the director community with respect to mandatory audit firm rotation. In his remarks, which are available on NACD’s website, he agreed with the PCAOB’s goal for increased auditor independence, objectivity, and skepticism.
However, Daly noted that mandatory audit firm rotation is not an effective way to achieve this goal. Instead, a rigorous evaluation process, used in conjunction with the PCAOB’s recently released Auditing Standard No. 16: Communications With Audit Committees can provide a more effective solution. To this end, an evaluation tool was produced by a collaboration of organizations dedicated to strengthening audit committee performance and transparency. The Audit Committee Evaluation of the External Auditor contains sample questions to gauge the quality of services provided, communications, and interaction. It can also be scaled for use at a wide range of organizations.