The AICPA Audit Committee Toolkit: Public Companies, 3rd Edition

Acknowledgements  iii

Preface  v

Part I: Audit Committee Administration

Chapter 1 — Audit Committee Member Roles and Responsibilities  3

Audit Committee Process and Procedures  4

Oversight of the Financial Reporting Process  4

Oversight of Financial Reporting  5

Oversight of the Independent Auditor  5

Oversight of the Internal Audit Function  5

Oversight of Risk Management  6

Oversight of Ethics and Compliance  6

Limitation of Audit Committee’s Role  6

Chapter 2 — Audit Committee Charter Matrix  7

Chapter 3 — Audit Committee Financial Expert Decision Tree  23

Chapter 4 — Sample Request for Proposal Letter for CPA Services and Qualifications (Public Company)  25

Background of ABC Company  25

Services to Be Performed  26

Key Personnel  26

Relationship With Prior CPA Service Provider  26

Other Information  27

Your Response to This Request for Proposal  27

Evaluation of Proposals  29

Chapter 5 — AICPA Peer Reviews and PCAOB Inspections of CPA Firms: An Overview  31

Peer Review of a CPA Firm  31

Peer Review Reports  32

Common Misconceptions of Peer Review  33

Questions for the Auditor Regarding Peer Review  33

Public Company Accounting Oversight Board Inspection  34

Questions for the Audit Committee Regarding the PCAOB Inspection  35

Chapter 6 — Guidelines for Hiring the Chief Audit Executive (CAE)  37

Role of the Audit Committee in Hiring and Evaluating the CAE  37

CAE Qualifications  37

Chapter 7 — Engaging Independent Counsel and Other Advisers  43

Part II: Key Responsibilities

Chapter 8 — Internal Control: Guidelines and Tool for the Audit Committee  47

Internal Control Primer  47

Internal Control Over Financial Reporting  52

ICFR Results  55

Conclusion  56

Internal Control—Checklist of COSO Essentials for the Board  57

Chapter 9 — Fraud and the Responsibilities of the Audit Committee: An Overview  63

Definition and Categories of Fraud  63

Roles of the Audit Committee in the Prevention, Deterrence, Investigation, and Discovery or Detection of Fraud  64

Expertise of Forensic Accounting Consultants  65

When Fraud Is Discovered  65

Conclusion  66

Chapter 10 — Whistleblower Policy: Complaint Reporting Procedures and Tracking Report  67

Reasons for Tool  67

Whistleblower Common Practices Checklist  68

Sample Procedures For Handling Complaints (Whistleblower Policy)  71

Chapter 11 — Issues Report from Management  75

Defining Significant Issues, Critical Accounting Estimates, Significant Unusual Transactions, and Judgments  75

Sample Issues Report From Management  77

Issues Report From Management  79

Chapter 12 — Guidelines and Questions for Conducting an Audit Committee Executive Session  81

What Is an Executive Session?  81

Additional Questions to Consider: Tool for Audit Committee Members  83

Chapter 13 — Independent Auditor Communications with Audit Committee  97

Background  97

Objectives of Communications  97

Illegal Acts  103

Internal Control Matters  103

Fraud  103

Chapter 14 — Responding to the Identification of a Material Weakness—A Checklist for the Audit Committee  105

Background  105

Steps the Audit Committee Should Take If Faced With an Adverse Report on Internal Control  107

Part III: Performance Evaluation

Chapter 15 — Evaluating the Internal Audit Function: Questions to Consider  113

Chapter 16 — Evaluating the Independent Auditor: Questions to Consider  117

Questions for Audit Committee Members  117

Questions for Management and/or Internal Audit  120

Chapter 17 — Conducting an Audit Committee Self-Evaluation: Questions to Consider  121

Part IV: Other Tools

Chapter 18 — Enterprise Risk Management: A Primer on the COSO Framework  127

Enterprise Risk Management Primer—Basics of ERM and Its Relationship to Internal Control  127

Relationship Between COSO Enterprise Risk Management—Integrated Framework and Internal Control—Integrated Framework  129

Other Key Terms in Enterprise Risk Management  131

Portfolio View of Residual Risk Example  132

Roles and Responsibilities  132

Limitations of Enterprise Risk Management  133

Conclusion  133

Enterprise Risk Management: A Tool for Strategic Oversight  134

Chapter 19 — Enterprise Risk Management: A Tool for Strategic Oversight  135

Chapter 20 — Common Security and Exchange Commission (SEC) Filings: An Overview  139

Overview of the Most Common Corporate Filings  139

1933 Act Registration Statements  142

Investment Company Registration Statements  145

1934 Act Registration Statements  146

Other Exchange Act Forms  147

Trust Indenture Act of 1939—Forms  150

Chapter 21 — SEC Final Rule on Audit Committee Financial Experts  151

Chapter 22 — IFRS Implementation  161

Implementation  161

Stage 1: Assessment  161

Stage 2: Conversion  162

Stage 3: Integration  163

Conclusion  164

Chapter 23 — Resources for Audit Committees  165