Notes:

  • The Independent Auditor:
    • Acts as the “gatekeeper” of financial integrity.
    • Must be independent in fact and appearance.
    • Rotation: While not mandatory for all companies, many best practices suggest rotating the lead audit partner every 5 years and the firm every 10-20 years (though the SEC does not mandate firm rotation for all).
  • Audit Committee Responsibilities:
    • Appointment: Sole authority to hire, fire, and set the compensation of the independent auditor.
    • Oversight: Reviews the scope of the audit, the auditor’s findings, and any disagreements between management and the auditor.
    • Non-Audit Services: Must pre-approve all non-audit services to ensure they do not impair independence.
    • Whistleblower Channel: The Audit Committee must establish procedures for the receipt and treatment of complaints regarding accounting or auditing matters.
  • Internal Audit Function:
    • An independent, objective assurance function within the company.
    • Reports functionally to the Audit Committee and administratively to management (e.g., CFO or CEO).
    • Focuses on evaluating the effectiveness of risk management, control, and governance processes.
  • Quality Control:
    • Auditors are subject to PCAOB (Public Company Accounting Oversight Board) inspections in the US.
    • The Audit Committee should review the PCAOB inspection reports for their auditor.
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