A global survey of audit committee requirements finds increased oversight of audit processes

U.S. regulators have expanded the role of the audit committee in recent years to oversee the hiring and performance of the external auditor in the hopes of improving audit quality. In many ways, the United States was just catching up with audit governance practices that were already common in Europe. A new survey, however, finds strong audit oversight by the audit committee is a concept that is taking hold around the globe.

The survey, conducted by the Board of the International Organization of Securities Commissions (IOSCO) and titled "Survey Report on Audit Committee Oversight of Auditors," seeks to identify audit committee practices that could improve audit quality at publicly listed companies.

The survey finds that audit committee oversight of the audit process is expanding and strengthening even in jurisdictions outside the United States and Europe. The survey results indicate, for example, that 96 percent of the 47 responding jurisdictions require publicly listed entities to establish an audit committee or another similar governance body that is separate from the executive management and acts in the interest of investors.

The report summarizes the results of an IOSCO survey of its members regarding the existing legal, regulatory, and other requirements related to the oversight by audit committees of the auditor and the audit process of domestic publicly-listed entities.

Increased Audit Governance

In many jurisdictions, audit committees are playing an expanded role in appointing external auditors and overseeing the financial reporting process and external audits. The report includes IOSCO ́s observations regarding the survey responses on the following:

Audit Committee Independence
At least one member of the audit committee is required to be independent of both the management of the publicly listed entity and the auditor in 100 per cent of responding jurisdictions, and 76 percent of jurisdictions require a majority of audit committee members or all audit committee members to be independent.

Audit Committee Special Skills or Experiences
At least one audit committee member is required to have special skills or experience in 87 percent of responding jurisdictions.

Audit Committee Assessments of Auditor Independence
Over 90 percent of responding jurisdictions require that the audit committee be explicitly responsible for assessing the auditor's independence.

Audit Committee Assessment of Auditor Performance
A periodic assessment of auditor performance by the audit committee is required in 71 percent of responding jurisdictions, although the guidance provided to audit committees to consider in assessing auditor performance varies significantly by jurisdiction.

Auditor Communications to the Audit Committee
Communications from the auditor to the audit committee are required in 80 percent of responding jurisdictions.

Transparency Reporting
Requirements that audit firms provide transparency reporting exist in 61 per cent of countries with developed capital markets, while 15 per cent of growth and emerging market jurisdictions have this requirement.

Shareholder Vote and Reporting to Shareholders
An active involvement by shareholders is evident in that 79 per cent of responding jurisdictions require a shareholder vote on auditor selection. The survey also highlighted a notable increase in the role and responsibility of the audit committee related to auditor oversight since 2004 when IOSCO last conducted a stock taking of audit committee requirements.

Survey Demographics

In total, responses were received from 47 jurisdictions, including 29 (62 percent) from members of IOSCO's Growth and Emerging Markets Committee, and 18 (38 percent) from developed capital markets. Geographically, 10 (21 percent) of responses were received from the Inter-American region, 10 (21 percent) from the Asia-Pacific region, 22 (47 percent) from the European region, and 5 (11 percent) from the Africa/Middle-East region.