Guidance For The Audit Committee: Acquiring Professional Services

Outside firms are often called upon to provide an entity with professional services.  Such services might include external audit, systems, accounting, appraisal and valuation, actuarial, consulting, tax, or agreed-upon procedures work.  The audit committee of the Board of Directors is typically the party within the entity responsible for hiring and overseeing these outside professional service providers.   The Sarbanes-Oxley Act of 2002 mandates that certain professional services, which may have previously been performed by the firm engaged to do the external audit, cannot be performed by that public accounting firm.  Thus, audit committees may be forced to contract with other professionals for services previously provided by the external auditors.  The task of locating, contracting with, and overseeing the work of qualified firms for these professional services may seem daunting to the audit committee.   This article presents steps the audit committee should take in selecting a professional service provider and overseeing that firm’s work.  Also given are ways in which the entity’s internal audit activity can provide significant assistance to the audit committee undertaking its tasks.

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The Composition of Nonprofit Audit Committees

Accounting Horizons ◽

10.2308/acch.2006.20.1.75 ◽

2006 ◽

Vol 20 (1) ◽

pp. 75-90 ◽

Cited By ~ 44

Author(s):

Thomas E. Vermeer ◽

K. Raghunandan ◽

Dana A. Forgione

Keyword(s):

Nonprofit Organizations ◽

Audit Committee ◽

Nonprofit Sector ◽

Internal Audit ◽

Audit Committees ◽

Chief Financial Officers ◽

Independent Directors ◽

Government Grants ◽

Sarbanes Oxley ◽

Financial Expert

Audit committee composition has attracted significant attention from legislators and regulators in recent years. Although most of the focus has been on corporate audit committees, recent legislative efforts underscore the importance of governance in the nonprofit sector. Using data from a survey of 118 chief financial officers of nonprofit organizations as well as financial data from the GuideStar database, we examine the composition of nonprofit audit committees and factors associated with their composition. The data show that many nonprofits have not adopted Sarbanes-Oxley reforms, since we find that 36 percent of nonprofits have audit committees that are not completely independent. Organizations that are larger, receive government grants, and use a Big 4 auditor are more likely to have audit committees with solely independent directors. Surprisingly, universities and hospitals are less likely to have solely independent directors on the audit committee. Eighty-eight percent of nonprofits have at least one financial expert on the audit committee, and organizations that receive government grants and have an internal audit function are more likely to have a financial expert on the committee. Overall, our findings support the view that nonprofit audit committee composition varies in response to the demands related to the need for resources, the presence of other monitoring mechanisms, and the type of nonprofit.

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Corporate governance characteristics of firms reporting internal control deficiencies

Corporate Ownership and Control ◽

10.22495/cocv8i2c3p4 ◽

2011 ◽

Vol 8 (2) ◽

pp. 363-390

Author(s):

Kathleen Rupley

Keyword(s):

Corporate Governance ◽

Internal Control ◽

Audit Committee ◽

Internal Audit ◽

High Growth ◽

Audit Committees ◽

Market Reactions ◽

Sarbanes Oxley ◽

Internal Control Deficiencies ◽

Nominating Committees

From a sample of firms reporting internal control deficiencies (ICD), I compare corporate governance structures to industry, exchange, and size – matched firms. I examine market reactions to reports of ICDs in 8-K filings. Additionally, I examine shifts in corporate governance characteristics since the Sarbanes-Oxley Act of 2002 (SOX). Results indicate that weaker boards, larger audit committees, less independent nominating committees, and high growth companies are associated with ICDs. Market reaction is negative to ICD disclosures when they are associated with controls over revenue. Firms have made changes post-SOX including reduced non-audit services, more frequent audit committee meetings, formation of nominating and governance committees, creation of internal audit functions, and implementation of corporate governance policies.

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The concept and the appearance of internal audit committees

Annals Constanta Maritime University ◽

10.38130/cmu.2067.100/42/19 ◽

2018 ◽

Vol 27 (2018) ◽

pp. 111-114

Author(s):

Cristian Dragan

Keyword(s):

Corporate Governance ◽

Internal Control ◽

Boards Of Directors ◽

Audit Committee ◽

Internal Audit ◽

Audit Committees ◽

External Audit ◽

General Management ◽

Proper Functioning

The Audit Committee is a concept of Corporate Governance, whose main concerns are focused on organizing and ensuring the proper functioning of internal control, internal audit, and its relationship with external audit. Audit committees have emerged from the need to send recommendations to the general management or board, to understand them and provide needed assistance for their implementation. For these reasons, the boards of directors thoroughly oversee the qualifications of committee members, their autonomy towards managers, the information they receive from auditors, and what they report.

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Corporate Governance, Audit Quality, and the Sarbanes-Oxley Act: Evidence from Internal Audit Outsourcing

The Accounting Review ◽

10.2308/accr.2007.82.4.803 ◽

2007 ◽

Vol 82 (4) ◽

pp. 803-835 ◽

Cited By ~ 106

Author(s):

Lawrence J. Abbott ◽

Susan Parker ◽

Gary F. Peters ◽

Dasaratha V. Rama

Keyword(s):

Audit Quality ◽

Internal Audit ◽

Auditor Independence ◽

Audit Committees ◽

Internal Auditing ◽

External Audit ◽

Internal Auditor ◽

Sarbanes Oxley ◽

External Auditor ◽

Audit Activity

This study extends current literature related to nonaudit services by investigating internal audit outsourcing to the external auditor. We posit that certain types of internal audit outsourcing (i.e., those which are nonroutine, and thus tend to be nonrecurring in nature) are unlikely to lead to economic bonding, while offering significant potential for improvements in audit coverage and scope when provided by the external auditor. Alternatively, outsourcing routine internal audit tasks is more likely to lead to economic bonding, as well as potentially threatening internal auditor independence. Our results are consistent with firms with independent, active, and expert audit committees being less likely to outsource routine internal auditing activities to the external auditor. However, the outsourcing of nonroutine internal audit activities such as special projects and EDP consulting are not negatively related to effective audit committees. Additionally, outsourcing of either type of internal audit activity to an outside service provider other than the external auditor is not related to effective audit committees. Collectively, we interpret these findings as supportive of an effective audit committee's ability to monitor the sourcing of the firm's total (i.e., internal and external) audit coverage, while simultaneously exhibiting concern for external auditor independence.

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Internal Audit Issues Facing Corporate Audit Committees

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v25i2.1040 ◽

2011 ◽

Vol 25 (2) ◽

Author(s):

Arnold Schneider

Keyword(s):

Audit Committee ◽

Internal Audit ◽

Audit Committees ◽

Internal Auditing ◽

Font Size ◽

Internal Auditor ◽

Internal Resources ◽

Personnel Decisions ◽

Research Findings ◽

Audit Standards

The paper reviews and analyzes professional audit standards, audit committee charters, and research findings pertaining to audit committee oversight of internal auditing and assistance obtained from internal auditing.  Issues examined are the development of internal audit charters, authorizing the acquisition of internal resources, reviewing and approving internal audit plans, making personnel decisions concerning the chief internal auditor, holding meetings with the chief internal auditor, and requesting special investigations from internal auditing.

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Adoption of Sarbanes-Oxley Measures by Nonprofit Organizations: An Empirical Study

Accounting Horizons ◽

10.2308/acch.2008.22.3.255 ◽

2008 ◽

Vol 22 (3) ◽

pp. 255-277 ◽

Cited By ~ 27

Author(s):

Venkataraman M. Iyer ◽

Ann L. Watkins

Keyword(s):

Nonprofit Organizations ◽

Audit Committee ◽

Code Of Conduct ◽

Internal Audit ◽

Internal Controls ◽

Financial Reports ◽

Internal Auditors ◽

Accountability Measures ◽

Sarbanes Oxley ◽

The Board Of Directors

SYNOPSIS: This paper reports the results of a survey of 215 nonprofit organizations to determine the degree to which these organizations have voluntarily adopted provisions of the Sarbanes-Oxley Act of 2002 (SOX). The authors believe that this research is timely and important as several states are considering implementing regulation that would have implications for stricter accountability measures for nonprofit organizations. Results indicate that many of the nonprofits in this survey have either already adopted governance measures similar to those prescribed by SOX or are in the process of doing so. The regression results indicate that size of budget, size of the board of directors, and proportion of independent members on the board are significantly related to the presence of an audit committee. Organizations engaging external or internal auditors are more likely to have a code of conduct and have periodic assessments of internal controls. The presence of an internal audit function is also significantly related to management certification of financial reports. The regression analysis on a composite SOX measure (which was calculated by summing the responses to questions on adoption of an audit committee, code of conduct, whistleblower protection, management certification of financial reports, and periodic assessments of internal controls) indicates that the presence of an external and/or an internal audit is significantly related to the adoption of such SOX measures.

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Did the 1999 NYSE and NASDAQ Listing Standard Changes on Audit Committee Composition Benefit Investors?

The Accounting Review ◽

10.2308/accr-51716 ◽

2017 ◽

Vol 92 (6) ◽

pp. 187-212 ◽

Cited By ~ 17

Author(s):

Seil Kim ◽

April Klein

Keyword(s):

Financial Reporting ◽

Audit Committee ◽

Research Question ◽

Reporting Quality ◽

Audit Committees ◽

Financial Reporting Quality ◽

Difference In Differences ◽

Listed Firms ◽

Sarbanes Oxley ◽

Independent Audit

ABSTRACT In December 1999, the SEC instituted a new listing standard for NYSE and NASDAQ firms. Listed firms were now required to maintain fully independent audit committees with at least three members. In July 2002, the U.S. Congress legislated these standards through the Sarbanes-Oxley Act. Our research question is whether all investors benefited from the 1999 new rule. Using both an event study and a difference-in-differences methodology, we find no evidence of higher market value or better financial reporting quality resulting from this rule.

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The impact of audit committee characteristics on internal audit professionalization: empirical evidence from Greece

Accounting Research Journal ◽

10.1108/arj-05-2020-0091 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Christina Vadasi ◽

Michalis Bekiaris ◽

Andreas G. Koutoupis

Keyword(s):

Empirical Evidence ◽

Audit Committee ◽

Audit Quality ◽

Research Question ◽

Internal Audit ◽

Audit Committees ◽

Annual Reports ◽

Substantial Impact ◽

Content Type ◽

The Impact

Purpose This paper aims to provide empirical evidence of the association between audit committee characteristics and internal audit quality through internal audit professionalization. Design/methodology/approach The investigation of the research question was based on 45 usable responses that were received from a survey of chief audit executives from firms listed on the Athens Stock Exchange and combined with publicly available information from annual reports. Findings The results indicate that audit committee characteristics (independence, diligence through frequent meetings and interaction with internal audit through valuation) influence internal audit professionalization. In addition, they demonstrate that internal audit professionalization is also influenced by CEO duality and firm’s external auditor. Practical implications The findings of this study have implications for audit committees wishing to improve their overall effectiveness, by identifying areas with substantial impact on internal audit quality. Moreover, regulators of corporate governance bodies can also benefit from the results to strengthen audit committee’s efficiency regarding internal audit function oversight. Originality/value The results add to the literature on the discussion of internal audit professionalization and complement the work of other researchers in the field of audit committee’s impact on internal audit quality/effectiveness. This study attempts to fill a gap in the literature on the effect of audit committee characteristics on internal audit professionalization, an element introduced from an institutional theory perspective.

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The More, The Better? A Case History Of Audit Committee Regulations

Journal of Business Case Studies (JBCS) ◽

10.19030/jbcs.v9i2.7695 ◽

2013 ◽

Vol 9 (2) ◽

pp. 105-110

Author(s):

Songtao Mo ◽

Yifan Shi ◽

Yajing Wang

Keyword(s):

Corporate Governance ◽

Critical Thinking ◽

Case History ◽

Audit Committee ◽

Learning Experience ◽

Audit Committees ◽

Regulatory Environment ◽

Regulatory Changes ◽

Sarbanes Oxley ◽

History Of

An understanding of changing auditing regulatory environment is vital in preparing students for the challenges in the accounting profession. The revised requirements for audit committees are one of the significant changes after the Sarbanes-Oxley Act of 2002. Presenting a case history of regulatory changes for audit committees, this study requires students to critically analyze information and to conduct research on auditing topics. Meanwhile, integrating further discussion on corporate governance into auditing class can enrich students learning experience by stimulating critical thinking.

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The state of internal audit’s regulatory mandate

Risk Governance and Control Financial Markets & Institutions ◽

10.22495/rcgv6i3c2art12 ◽

2016 ◽

Vol 6 (3) ◽

pp. 93-99

Author(s):

Christo Ackermann

Keyword(s):

Board Of Directors ◽

South African ◽

Best Practice ◽

Internal Audit ◽

Audit Committees ◽

Detailed Review ◽

Internal Audit Function ◽

Key Stakeholders ◽

The Board Of Directors ◽

State Of Affairs

The importance of an effective internal audit function in South African municipalities have been recognised insofar as internal audit functions are legally mandated to exist within municipalities. This also means that legally, internal audit has certain mandates which must be fulfilled in order to add value to management and audit committees, and ultimately, to the board of directors. Even though internal audit is sanctioned by this important legal mandate, evidence shows that internal audit does not always fulfil this mandate. This state of affairs has prompted a detailed review of the relevant laws and regulations governing the work of internal audit in South African municipalities in order to determine the extent to which key stakeholders find the regulatory work of internal audit useful in discharging their (stakeholders’) oversight responsibilities. Questionnaires were administered to audit committees. The results summarise the extent to which internal audit’s work assists audit committees in their oversight responsibilities as this ultimately affects the ability of audit committees to fulfil these responsibilities to the board of directors. The results indicate that audit committees are greatly dependent on internal audit as a provider of assurance on a variety of legally mandated variables. The results of this study can be used as a measure of best practice of the legally mandated duties performed by internal audit. It can also be used by other researchers in comparative studies and by practitioners to benchmark their work in order to better serve audit committees and ultimately, the board of directors.

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