IOSCO issues survey report on audit committee oversight of auditors

The board of the International Organisation of Securities Commissions (IOSCO) Tuesday published the survey report on audit committee oversight of auditors, which seeks to help identify audit committee practices that could improve audit quality at publicly listed entities.

IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation.  The organisation’s membership regulates more than 95percent of the world’s securities markets in more than 115 jurisdictions and it continues to expand.

In many jurisdictions (Nigeria inclusive), the audit committee of a publicly listed entity plays a key role in appointing external auditors and overseeing the financial reporting process and external audits.

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.

The report also serves to inform interested stakeholders and IOSCO members of the audit committee requirements in force in different jurisdictions, as of 31 December 2014.

The survey results indicate 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 includes IOSCO´s observations regarding the survey responses on 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 percent of responding jurisdictions, and 76 percent of jurisdictions require a majority of audit committee members or all audit committee members to be independent.

The report includes IOSCO´s observations regarding the survey responses on 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.

It also includes IOSCO´s observations regarding the survey responses on 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.

The report includes IOSCO´s observations regarding the survey responses on 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.

On auditor communications to the audit committee, it indicates that communications from the auditor to the audit committee are required in 80 percent of responding jurisdictions.

Furthermore, on transparency reporting, IOSCO response shows audit firms providing transparency reporting exist in 61 percent of countries with developed capital markets, while 15 percent of growth and emerging market jurisdictions have this requirement.

The report which includes IOSCO´s observations regarding the survey responses on shareholder vote and reporting to shareholders also shows that an active involvement by shareholders is evident in that 79 percent 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.