Sample Questions for Evaluating an External Auditor

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Each year, audit committees should evaluate the external auditor in fulfilling their duty to make an informed recommendation to the Board whether to retain the auditor.

The evaluation should encompass an assessment of the qualifications and performance of the auditor; the quality and candor of the auditor’s communications with the audit committee and the company; and the auditor’s independence, objectivity and professional skepticism.

FOLLOWING IS A LIST OF SUGGESTED SAMPLE QUESTIONS, AND ALSO A LIST OF ATTRIBUTES FOR COMPANY PERSONNEL TO RATE:

*Q1
Did the lead engagement partner and audit team have the necessary knowledge and skills (company-specific, industry, accounting, auditing) to meet the company’s audit requirements? Were the right resources dedicated to the audit? Did the auditor seek feedback on the quality of the services provided? How did the auditor respond to feedback? Was the lead engagement partner accessible to the audit committee and company management? Did he/she devote sufficient attention and leadership to the audit?

*Q2
Did the lead engagement partner discuss the audit plan and how it addressed company/industry-specific areas of accounting and audit risk (including fraud risk) with the audit committee? Did the lead engagement partner identify the appropriate risks in planning the audit? Did the lead engagement partner discuss any risks of fraud in the financial statement that were factored into the audit plan?

*Q3
If portions of the audit were performed by other teams in various domestic locations, or abroad by the firm’s global network or other audit firms, did the lead engagement partner provide information about the technical skills, experience and professional objectivity of those auditors? Did the lead engagement partner explain how he/she exercises quality control over those auditors?

*Q4
During the audit, did the auditor meet the agreed upon performance criteria, such as the engagement letter and audit scope? Did the auditor adjust the audit plan to respond to changing risks and circumstances? Did the audit committee understand the changes and agree that they were appropriate?

*Q5
Did the lead engagement partner advise the audit committee of the results of consultations with the firm’s national professional practice office or other technical resources on accounting or auditing matters? Were such consultations executed in a timely and transparent manner?

*Q6
If the company’s audit was subject to inspection by the PCAOB or other regulators, did the auditor advise the audit committee of the selection of the audit, findings, and the impact, if any, on the audit results in a timely manner? Did the auditor communicate the results of the firm’s inspection more generally, such as findings regarding companies in similar industries with similar accounting/audit issues that may be pertinent to the company? Did the auditor explain how the firm planned to respond to the inspection findings and to internal findings regarding its quality control program?

*Q7
Was the cost of the audit reasonable and sufficient for the size, complexity and risks of the company? Were the reasons for any changes to cost (e.g., change in scope of work) communicated to the audit committee? Did the audit committee agree with the reasons?

*Q8
Does the audit firm have the necessary industry experience, specialized expertise in the company’s critical accounting policies, and geographical reach required to continue to serve the company?

*Q9
Did the audit engagement team have sufficient access to specialized expertise during the audit? Were additional resources dedicated to the audit as necessary to complete work in a timely manner?

*Q10
Did the audit engagement partner maintain a professional and open dialogue with the audit committee and audit committee chair? Were discussions frank and complete? Was the audit engagement partner able to explain accounting and auditing issues in an understandable manner?

*Q11
Did the auditor adequately discuss the quality of the company’s financial reporting, including the reasonableness of accounting estimates and judgments? Did the auditor discuss how the company’s accounting policies compare with industry trends and leading practices?

*Q12
In executive sessions, did the auditor discuss sensitive issues candidly and professionally (e.g., his/her views on, including any concerns about, management’s reporting processes; internal control over financial reporting (e.g., internal whistle blower policy); the quality of the company’s financial management team)? Did the audit engagement partner promptly alert the audit committee if he/she did not receive sufficient cooperation?

*Q13
Did the auditor ensure that the audit committee was informed of current developments in accounting principles and auditing standards relevant to the company’s financial statements and the potential impact on the audit?

*Q14
Did the audit firm report to the audit committee all matters that might reasonably be thought to bear on the firm’s independence, including exceptions to its compliance with independence requirements? Did the audit firm discuss safeguards in place to detect independence issues?

*Q15
Were there any significant differences in views between management and the auditor? If so, did the auditor present a clear point of view on accounting issues where management's initial perspective differed? Was the process of reconciling views achieved in a timely and professional manner?

*Q16
If the auditor is placing reliance on management and internal audit testing, did the audit committee agree with the extent of such reliance? Were there any significant differences in views between the internal auditors and the auditor? If so, were they resolved in a professional manner?

*Q17
In obtaining pre-approval from the audit committee for all non-audit services, did the lead engagement partner discuss safeguards in place to protect the independence, objectivity and professional skepticism of the auditor?

Furthermore, another good way to get well-rounded feedback is to provide a simple questionnaire to the rest of the company staff in order for them to rate their experience. 

Here therefore, is a guide, divided into sections, to help:

OBTAINING INPUT ON THE EXTERNAL AUDITOR FROM COMPANY PERSONNEL 

QUALITY OF SERVICES PROVIDED BY THE EXTERNAL AUDITOR RATING

• Meets commitments e.g., by meeting agreed upon performance delivery dates, being available and accessible to management and the audit committee.
• Is responsive and communicative e.g., by soliciting input relative to business risks or issues that might impact the audit plan, identifying and resolving issues in a timely fashion, and adapting to changing risks quickly.
• Proactively identifies opportunities and risks e.g., by anticipating and providing insights and approaches for potential business issues, bringing appropriate expertise to bear, and by identifying meaningful alternatives and discussing their impacts.
• Delivers value for money e.g., by charging fees that fairly reflect the cost of the services provided, and being thoughtful about ways to achieve a cost-effective quality audit.

SUFFICIENCY OF AUDIT FIRM RESOURCES RATING

• Is technically competent and able to translate knowledge into practice e.g., by delivering quality services within the scope of the engagement, using technical knowledge and independent judgment to provide realistic analysis of issues, and providing appropriate levels of competence across the team.
• Understands our business and our industry e.g., by demonstrating an understanding of our specific business risks, processes, systems and operations, by sharing relevant industry experience, and by providing access to firm experts on industry and technical matters.
• Assigned sufficient resources to complete work in a timely manner e.g., by providing access to specialized expertise during the audit and assigning additional resources to the audit as necessary to complete work in a timely manner.

COMMUNICATION AND INTERACTION RATING

• Communicates effectively e.g., by maintaining appropriate levels of contact/dialogue throughout the year, effectively communicating verbally and in writing, being constructive and respectful in all interactions, and providing timely and informative communications about accounting and other relevant developments.
• Communicates about matters affecting the firm or its reputation e.g., by advising us on significant matters pertaining to the firm while respecting the confidentiality of other clients’ information, and complying with professional standards and legal requirements, including informing us when the company’s audit is subject to inspection by the PCAOB or other regulatory review and sharing the results of the review that are pertinent to the company’s accounting or auditing issues.

INDEPENDENCE, OBJECTIVITY AND PROFESSIONAL SKEPTICISM RATING

• Demonstrates integrity and objectivity e.g., by maintaining a respectful but questioning approach throughout the audit, proactively raising important issues to appropriate levels of the organization until resolution is reached, and articulating a point of view on issues.
• Demonstrates independence e.g., by proactively discussing independence matters and reporting exceptions to its compliance with independence requirements.
• Is forthright in dealing with difficult situations e.g., by proactively identifying, communicating and resolving technical issues, raising important issues to appropriate levels in the organization, and by handling sensitive issues constructively.

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READ MORE>> www.thecaq.org: Audit Committee Annual Evaluation of the External Auditor

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