The Audit Committee Evaluation Questionnaire

Introduction

  1. This Checklist1 has been designed to help the Audit Committees in central government assess how well they apply good practice. The criteria we have used are derived largely from the Audit Committee Handbook (March 2007)2 published by HM Treasury.
  2. The Handbook highlights five good practice principles which aim to answer the following key questions:
    • Principle 1: The Role of the Audit Committee – Does the Audit Committee effectively support the Board and the Accounting Officer by reviewing the completeness of assurances to satisfy their needs, and by reviewing the reliability and integrity of these assurances?
    • Principle 2: Membership, Independence, Objectivity and Understanding – Is the Audit Committee suitably independent and objective, and does each member have a good understanding of the objectives, priorities and risks of the organisation, and of their role on the Audit Committee?
    • Principle 3: Skills – Does the Audit Committee contain or have at its disposal an appropriate mix of skills to perform its functions well?
    • Principle 4: Scope of Work – Is the scope of the Audit Committee suitably defined, and does it encompass all the assurance needs of the Board and Accounting Officer?
    • Principle 5: Communication – Does the Committee engage effectively with the work of internal and external audit? And does the Audit Committee communicate effectively with the Accounting Officer, the Board, and other stakeholders?
  3. For each principle, we have a series of Good Practice Questions to help Audit Committees conclude whether they are meeting these principles.

1This Checklist was originally published in November 2009 and has been updated (January 2012) to reflect the requirement for Central Government departments, their executive agencies and arm’s-length bodies to produce a Governance Statement in place of the Statement on Internal Control in their annual report and accounts for 2011-12 onwards. Guidance on the Governance Statement is set out in the revised Chapter 3 of Managing Public Money (HM Treasury, 2011)

2Corporate governance in central government departments: Code of good practice (HM Treasury, July 2011) provides that Audit Committees should be established and function in accordance with the Audit Committee Handbook (HM Treasury, March 2007).

Section I: Good practice principles for Audit Committees

Principle 1: The role of the Audit Committee

The Audit Committee should support the Board and the Accounting Officer by reviewing the comprehensiveness of assurances in meeting the Board and Accounting Officer’s assurance needs, and reviewing the reliability and integrity of these assurances.

Terms of Reference

 
1.  Does the Audit Committee’s role include monitoring and reviewing the executive’s processes for assessing, reporting and owning risks?
2.  Does the Audit Committee have written terms of reference that adequately and realistically define the Committee’s role?
3.  Are the Terms of Reference reviewed at least annually by the Board and the Audit Committee, to ensure that the work of the Audit Committee is aligned with good practice and business needs?
4.  Do the Terms of Reference include rules for a quorum?
5.  Does the Audit Committee meet regularly (at least four times a year), and do meetings coincide with key dates in the financial reporting and audit cycle?

Additional Comments:

Principle 2: Membership, Independence, Objectivity and Understanding

The Audit Committee should be independent and objective; in addition, each member should have a good understanding of the objectives and priorities of the organisation and of their role as an Audit Committee member.

Independence

6.  Is the Chair of the Audit Committee different from the Chair of the Board?
7.  Are the Audit Committee members either independent non-executive Board members or independent external members, and have they been appointed for an appropriate period of time (e.g. three years)?
8.  Are Committee members independent of the management team?

Other Participants

9.  Does the Accounting Officer, Director of Finance & Corporate Resources, Head of Internal Audit and the External Auditor routinely attend the Audit Committee, or attend at the request of the Audit Committee members?
10.  Are the numbers attending the Audit Committee meetings sufficient to deal adequately with the agenda, but not too many to blur issues?

Conflict of Interest

11.  Is the first agenda item of every meeting a request for the Audit Committee members to declare any potential conflict of interest with any of the business items on the Audit Committee’s agenda?
12.  In instances where there is a declaration of interest in any of the agenda business items, are appropriate actions taken, e.g. is the member asked to leave the meeting while the business item is being discussed?
13.  Are the Audit Committee members required to declare their interest in a register of interests?

Additional Comments:

Principle 3: Skills

The Audit Committee should collectively possess an appropriate skills mix to perform its functions well.

Range of Skills

Does the Audit Committee ensure that there are areas of collective understanding, including:
14.  A. accountancy – with at least one member having recent and relevant financial experience?
B. governance, assurance and risk management?
C. audit?
D. technical or specialist issues pertinent to the organisation’s business?
E. experience of managing similar sized organisations?
F. understanding of the wider environments in which the organisation operates?

Additional Skills

Do the Audit Committee members feel empowered to:

15.  A. co-opt members for a period of less than one year to provide specialist skills that the members do not have to be an effective Committee?
B. procure specialist advice at reasonable approved expense to the organisation, on an ad-hoc basis to support them in relation to particular pieces of Committee business?

Training and Development

16.  Does the Audit Committee ensure that new members have sufficient knowledge of the business to identify the key risk areas and to challenge both line management and internal and external auditors on critical and sensitive issues?
17.  Does the Audit Committee keep abreast of best practice and developments in corporate governance?

Additional Comments:

Principle 4: Scope of Work

The scope of the Audit Committee’s work should be defined in its Terms of Reference, and encompass all the assurance needs of the Board and Accounting Officer. Within this, the Audit Committee should have particular engagement with the work of Internal Audit, the work of External Auditor, and Financial Reporting issues.

Relationship with Internal Audit

18.  Does the Audit Committee receive regular progress reports on studies/work undertaken by Internal Audit?
19.  Does the Audit Committee review internal audit reports and management responses to issues raised, and monitor the progress made on Internal Audit’s recommendations?
20.  Does the Audit Committee consider that the experience, expertise and professional standard of the Internal Audit team are appropriate for the size, complexity, and inherent risk of the organisation?
21.  Does the Audit Committee review and approve the Internal Audit plan?
22.  Does the Audit Committee consider the External Auditor’s Audit Strategy and make suggestions regarding risk and problem areas the audit could address in the short and long term?
23.  Where relevant, does the Audit Committee review the audit fees?
24.  Does the Audit Committee consider the management letter and other relevant reports and the management’s response, and monitor the progress made on the recommendations?
25.  Does the Head of Internal Audit have a direct line of reporting to the Committee and its chairman?
26.  Is Internal Audit free from any operating responsibilities or conflicts of interest that could impair its objectivity?
27.  Does the Audit Committee hold periodic private discussions with the Head of Internal Audit?

Relationship between Internal Audit and External Auditors

28.  Does the Audit Committee seek confirmation from Internal Audit and the External Auditors on the effectiveness of the relationship?
29.  Does the Committee have a mechanism to keep it aware of topical, legal and regulatory issues Ie. through updates from Auditors?

Fraud

30.  Does the Audit Committee consider whether effective anti-fraud and corruption policies and procedures are in place and operating effectively?
31.  Does the Audit Committee consider whether management arrangements for whistle-blowing are satisfactory?

Internal Control

32.  Does the Audit Committee consider whether the system of internal reporting gives early warning of control failures and emerging risks?
33.  Does the Audit Committee consider whether the Governance Statement is sufficiently comprehensive and meaningful, and the evidence that underpins it?
34.  Does the Audit Committee satisfy itself that the system of internal control has operated effectively throughout the reporting period?

Financial Reporting

Before the Accounting Officer signs off the Annual Report and Financial Statements, does the Audit Committee consider:
35.  A. that the accounting policies in place comply with relevant requirements, particularly the Treasury’s Financial Reporting Manual and Accounts Direction?
B. that there has been a robust process in preparing the accounts and annual report?
C. whether the accounts and annual report have been subjected to sufficient review by management and by the Accounting Officer and/or Board?
36.  Where the accounts have been qualified, does the Audit Committee consider the action taken by the Board to deal with the causes of the qualification?
37.  Does the Audit Committee satisfy itself that the annual financial statements represent fairly the financial position of the organisation, regardless of the pressures on executive management?
38.  Before the Accounting Officer signs off the Letter of Representation, does the Audit Committee review it?

Additional Comments:

Principle 5: Communication

The Audit Committee should ensure it has effective communication with the Board, the Head of Internal Audit, the External Auditor, and other stakeholders.

Reporting to the Board

39.  Does the Audit Committee send regular reports or minutes of the Board or provide oral updates to the Board that they review at their meetings?
40.  Does the Audit Committee provide an Annual Report to the Board, timed to support preparation of the Governance Statement?
Section II - The role of the Chair: good practice

The Chair of the Audit Committee has particular responsibility for ensuring that the work of the Audit Committee is effective, that the Committee is appropriately resourced.

Agenda Setting

41.  Does the Chair of the Audit Committee ask for confirmation that the minutes are a true and fair representation of a summary of the business taken by the Audit Committee?
42.  Does the Chair of the Audit Committee meet with the Director of Finance & Corporate Resources before every meeting to discuss and agree the business for the meeting?
43.  Are the meetings set for a length of time which allows all business to be conducted, yet not so long that the meeting becomes ineffective?
44.  Does the Chair encourage full and open discussion and invite questions at the Audit Committee meetings?

Communication

45.  Does the Chair of the Audit Committee have open lines of communication with the Board, Head of Internal Audit, and the External Auditors?
46.  Do reports to the Audit Committee communicate relevant information at the right frequency, time, and in a format that is effective?

Monitoring Actions

47.  Does the Chair or the Director of Finance & Corporate Resources / Secretariat ensure that all action points from Committee meetings are appropriately acted upon?

Additional Comments:

Section III - Committee support: good practice

The Audit Committee should be provided with appropriate Secretariat support to enable it to be effective. This is more than a minute-taking function – it involves providing proactive support for the work of the Committee, and helping its members to be effective in their role.

48.  Does the Audit Committee Director of Finance & Corporate Resources / Secretariat request papers as necessary to support agenda items?
49.  Does the Audit Committee Director of Finance & Corporate Resources / Secretariat circulate meeting documents to all Committee members, Internal Audit and External Auditors in good time before each meeting, to allow members time to study and understand the information e.g. at least one week before the meeting?
50.  Does the Audit Committee Director of Finance & Corporate Resources / Secretariat arrange for Executives/senior management to be available as necessary to discuss specific agenda items with the Audit Committee during meetings?
51.  Does the Audit Committee Director of Finance & Corporate Resources / Secretariat ensure that the minutes clearly state all agreed actions, the responsible owner, when they will be done by and any advice given from any stakeholders?
52.  Does the Audit Committee Director of Finance & Corporate Resources / Secretariat ensure action points are being taken forward between meetings?
53.  Does the Audit Committee Director of Finance & Corporate Resources / Secretariat maintain a record of when members’ terms of appointment are due for renewal or termination?

Additional Comments: