To help directors who are stepping up to chair the audit committee, we’ve published this comprehensive checklist to prompt your thinking and help to proactively identify issues. The questions will help even if you are an experienced audit chair and have performed the role before, and/or if you have already served on this board or committee for a while.
The questions below provide comprehensive coverage across:
- Considering the challenge ahead
- Understanding structure
- Building the calendar
- Meeting process
- Managing the flow and quality of discussion in meetings
- Understanding the strategic risks
- Building the reporting framework
- Working with the statutory auditors
- Supporting internal audit
The questions are designed to start you thinking about issues that you may have noticed but not yet considered addressing as well as to help you to notice issues of which you may currently be unaware. The answers are not necessarily good or bad; they should reflect the current and desired state of your unique board and committee.
Don’t ask all of the questions. Trust yourself to recognise and ask the most important ones. You can return to the list at intervals to consider your progress. For example:
- When you, personally, first think about becoming audit chair
- Preparing for your first meeting with the committee
- Preparing your first report to the board
- At mid-year and year-end audit
At the end of the check list, we have listed some references that you may wish to investigate for additional reading on the topic. We have also included some suggestions for putting into action the ideas that result from considering the checklist.
Considering the challenge ahead
1. What attracts you to the audit committee chair role? What do you dislike about it?
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2. Why did the board appoint you to the role?
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3. What are the board’s key explicit expectations of you? How will you verify any unspoken expectations?
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4. Why is the former audit chair no longer in the role?
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5. Is the company in a perilous position either financially, competitively, legally, or in its relationship with any key stakeholder?
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6. Do you have any reason to suspect that previous audits have missed something?
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Understanding structure
7. Who are your committee members? Are they all board members or do you have any external financial experts who are not directors?
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8. Have you reached an understanding of what must be decided and done by the committee, what will be decided by the committee and the board working together, and what will be decided by the board and done by the committee?
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9. Are you happy with the constitution or terms of reference for your committee? Are any of your desired changes urgent?
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10. Which executives attend the committee by standing invitation? Do you want to increase or reduce their number?
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11. What other committees are there and where do you need to work together (especially with Risk, Compliance, Environment and/or Safety?)
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12. What company policies relate to audit? How are these kept up to date and how are staff kept aware of the need to implement these policies?
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Building the calendar
13. Do the audit committee meetings occur on a regular schedule?
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14. Is it more convenient for the board to have the meetings well separated from board meetings - so that minutes are available and papers prepared for matters referred from the committee to the board - or is it more convenient to have the audit and board meetings adjacent in time to optimise travel time and expenses?
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15. Is there a comprehensive board and committee calendar that shows the key topics on each agenda?
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16. Are any meetings too overloaded and needing to shed work to others? Do you need more or longer meetings?
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17. Are any meetings too ‘light’? Do you need more substantial items on the agenda or less frequent meetings?
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Meeting process
18. What is the current process for setting the agenda? Do you want to change it?
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19. How do committee members contribute items for the agenda?
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20. Are the papers meeting your committee’s needs? Are they clear, the right length, free from jargon, and delivered in a timely fashion so directors can read and consider them before the meeting?
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21. What is the process for members to ask questions about the papers before meetings? Who needs to know when questions are asked? Who needs copies of the answers?
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22. What is the process for approval of the committee minutes?
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23. Are conflicts of interest declared and managed?
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24. Do meetings run on time? What are the most frequent causes of ‘time stress’? Can these causes be avoided or prevented?
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25. Do committee members work collaboratively with management and auditors or do they descend into second-guessing and ‘gotcha’ moments?
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Managing the flow and quality of discussion in meetings
26. Does the committee spend the right amount of time on the right things? What changes (if any) will you make to agenda time allocation or order?
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27. Do meetings run on time? What are the most frequent causes of ‘time stress’? Can these causes be avoided or prevented?
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28. Do committee members work collaboratively with management and auditors or do they descend into second-guessing and ‘gotcha’ moments?
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29. Have discussions historically been introduced with enough context to allow director contribution and participation? How can you better introduce each agenda item so the board/committee members are ready to contribute to the discussion?
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30. How will you manage director contributions? Are there members who are more inclined to contribute to discussions, and may be too active? Are there others who will generally need to be invited to contribute or to strengthen their contribution?
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31. In what format and frequency will you provide feedback to directors on their contribution? What has the historical format and frequency of chair-director feedback been?
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32. How will you ensure robust discussion on difficult issues? When and how will you sound out board members and management on their perspectives?
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33. What was the previous chair’s process of preparing for committee meetings? Did they sound out board members and management to understand perspectives and difficult issues?
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34. What will your process of preparation for facilitating each meeting be? How will you sound out and understand perspectives to ensure robust conversation?
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35. How will you monitor your contribution to ensure you are a facilitator and not an opinion leader? Are there trusted voices on the committee who can reliably provide feedback if you are inserting yourself into the conversation too much?
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36. How well are you able to synthesise a discussion to summarise the committee’s view and next steps? What changes (if any) would other board members recommend to the way you synthesise and summarise conversations?
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37. How are next steps and accountabilities tracked on the committee? Are actions commonly summarised and documented by the individual responsible? The chair? The company secretary?
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38. How will you engage with relevant members of management to prepare for committee discussions? Will you adopt a consistent set of calls / check-ins prior to each meeting?
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39. How have management historically been engaged to prepare and participate in the meeting? Are there standards of behaviour (either stated or unstated, for board and/or management) that need to change to promote healthier discussion?
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40. If papers are introduced on a “taken as read” basis, are they actually taken as read? Does this expectation need to be changed or clarified?
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Understanding the strategic risks
41. What are the most important things your company must achieve in the next five years? Does your committee ensure that management is taking the right actions to achieve your goals?
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42. What could go wrong? Does your committee monitor leading KPIs that would trigger deeper investigation if performance started to slip?
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43. How does operational performance impact your financial statements? What are the key judgements that management make when deciding how to report performance?
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44. How does your choice of financial structure create or alleviate risks?
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Building the reporting framework
45. Do your minutes reflect the key considerations as well as the decisions of the committee?
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46. Do you provide a verbal report to the board and engage with their questions after each committee meeting?
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47. Do you keep a register of ‘matters arising’? Are audit recommendations followed up diligently?
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48. Do the board and executive team have visibility of upcoming audits and the results of completed audits?
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Working with the statutory auditor
49. Do you choose your statutory auditor or are they appointed for you by external stakeholders
1? When is the audit partner due to ‘rotate’? What is the process for appointing a new audit firm and when is it next due?
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50. What was the focus of the most recent audit? What is the expected focus of the next audit? Are you focused on the most important aspects of performance and risk?
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51. How strong is the relationship with the statutory auditor? Is it too close, too adversarial, or just the right amount of respect and challenge? What evidence supports your opinion?
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52. Does the auditor meet the committee without management present? When does the auditor meet with the board?
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53. Do you feel confident that you could seek advice from your auditor if need arose?
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54. How much work done by your audit firm is arguably not defined as statutory auditing?
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Supporting internal audit
55. Do you have a dedicated internal audit function, or do you rely on your own management to audit their work and that of their colleagues?
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56. Are the three lines of defence (management policies and processes, risk management and compliance, audit) working well and supporting each other?
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57. Do your internal auditors know what your key strategic risks are? Are the audits focused on these risks?
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58. Do you need to supplement internal skills by engaging specialist auditors such as IT, cyber security, workplace culture, etc.?
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59. Do line management work with the audit function to improve performance or do they merely seek a ‘clean’ audit result?
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60. Do you assess your audit and risk management maturity?
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Taking action
Read the questions and note which ones you can confidently answer. Make a record of any actions that you wish to take to help answer any questions that you were not confident about. Schedule those actions as immediate, before the first committee meeting, after the first committee meeting, within the first year.
Before the first committee meeting
- Review your action list and ensure that you have not omitted any important actions due to time pressure or other distractions.
- Create a detailed schedule of the actions for the next two months.
- Review your performance in the first month with the chair and board. Agree targets for the next two months. Discuss any questions to which you have not been able to generate a satisfactory answer.
After the first committee meeting
- Review your responses to the questions about the calendar and running meetings. Are you happy that your initial responses were correct? Now that you have been through the process once, what would you like to change?
After the first year:
- Revisit all the questions. Which ones did you correctly answer? What new insights do you have?
- How will these new insights alter your committee’s interactions with the board? How will they change the committee operations? How will they change your relationship with the auditors?
Additional reading and reference sources
Combined Assurance, G Sarens, L Decaux and R Lenz, The Institute of Internal Auditors Research Foundation, 2012
The Secure Board, A Leibel and C Pales, Longueville Media, 2021
The Board of Directors and Audit Committee Guide to Fiduciary Responsibilities: Ten Critical Steps to Protecting Yourself and Your Organization, S Moran and R Krel, Amacom, 2013
Audit Committee Essentials, C Verschoor, Wiley, 2008