Relationship Between Independent Auditors and Boards of Directors
To stay on the stock exchange, all publicly traded companies in the U.S. require a qualified audit committee.
The committees are charged with overseeing financial reporting and disclosure. Given how integral they are are to a company’s board of directors, the word of these auditors carries plenty of weight in any organization.
Also, the laws are such that auditors must all be independent directors. Furthermore, a committee must include at least one qualified financial expert.
Independent auditors bring an outside, non-partisan perspective that helps mitigate financial discrepancies and potential security risks. A well-maintained relationship between a board of directors and its independent auditors will provide not only peace of mind but access to insights that’ll greatly benefit their organization.
Let’s delve deeper into the topic:
The Functionality of Independent Auditors
A committee of auditors can launch special investigations when accounting practices seem suspicious or problematic. They’re also an authoritative source of input in the case of potentially harmful conflicts with employees.
During the above instances, the committee coordinates with an internal auditor.
Primarily, a board of directors’ interactions with their independent auditors goes through the chief financial officer (CFO) and controller.
These committees shouldn’t necessarily have a revolving door of members, but personnel may turnover at various stages. Independent auditors are like any other business entity – therefore, any number of internal and external influences affect the length of any given auditor’s tenure.
Audit committees meet on a formally scheduled capacity every quarter, at a minimum. Though, they’ll also schedule ad-hoc in-person or telephone meetings depending on the circumstances.
Directors of these committees receive annual compensation, but they also collect a fee for every meeting they attend.
Independent auditors oversee financial reporting, monitor accounting policies, and track the work of external auditors. They’re also responsible for regulatory compliance as well as communicating and conveying risk management policies with leadership teams.
Audit Committee Hazards
The level of responsibility faced by independent auditors can’t be understated. They play a critical role in a company’s financial stability and security.
After all, reports on financing, compliance, and risk management all face a variety of perils that can land an organization in a world of trouble. As companies gain more notoriety and continue to grow, they become more open to these dangers. It’s challenging to pinpoint complex discrepancies with thousands of employees and offices all over the world.
Independent auditors are even tasked with fending off cyber hackers—highlighting the demanding nature of the role.
In fact, in 2019, cybersecurity should be a top priority for most audit committees serving boards of directors.
What Should Companies Look for in An Auditor?
Much like filling any job vacancy, the primary focus of landing a fantastic independent auditor should be finding the right fit for the organization.
Ensure that independent auditors have a skill set that matches accordingly with the operations of the business. Preferably, they’d have a successful history of working with similar companies.
Also, auditors should be of high character and uninfluenced by outside factors.