IOSCO issued its recommended "good practices" for the "audit committees of listed companies in supporting and promoting external audit quality."
In a report, IOSCO stated that the quality of a company's financial report is important to "market confidence and informed investors, and to the effective functioning of capital markets." IOSCO further said that the audit committee has an important role in maintaining the quality of the financial report. While the auditor has primary responsibility for audit quality, IOSCO advised, the audit committee must foster and support audit quality, which provides for investor confidence in the company's financial reports.
According to IOSCO, "good practices" include:
- developing a recommendation "on the selection of auditors independently of management with selection criteria set up front and tenderers assessed against those criteria";
- considering issues such as auditor's knowledge of a listed company's business and industry;
- reviewing the extent to which audit fees are aligned with the audit plan and a quality audit;
- encouraging quality and timely reporting by soliciting explanations "on the appropriateness of accounting treatments and estimates, proper books and records, and systems and controls";
- "review[ing] and challeng[ing] management's accounting treatments and estimates";
- overseeing the development of policies on auditor independence;
- maintaining "open, timely and meaningful communication with auditors" regarding risks and issues; and
- evaluating audit quality with respect to "[i]nquiry, observation and how the auditor addresses findings by audit regulators."
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