Audit Committees: A guide to good practice, 3rd Edition

Audit Committees

This is for the print edition of this book. To purchase the ebook, click here.

An independent audit committee is a fundamental component of good corporate governance.

This guide provides a practical introduction to the role and responsibilities of an audit committee. It explains the context in which an audit committee typically operates and outlines good practice.

This third edition reflects developments in audit committee practice, legislation and guidance from regulatory bodies and in leading global board practices. In particular, it has been updated for the latest ASX Corporate Governance Council’s Principals and Recommendations, newly released ASIC guidance notes and information sheets and the requirement for key audit matters to be discussed and communicated through the audit report.

The guide is primarily for directors and audit committees of Australian listed companies. However, directors and audit committees of not-for-profit, public sector and other private sector entities may also find this guide to be a useful reference.

It has been produced by the Auditing and Assurance Standards Board, the Australian Institute of Company Directors and the Institute of Internal Auditors-Australia.

Since the 2nd edition of this guide was published in 2012, some of the key developments in Australia include:

  • January 2017 — The Institute of Internal Auditors Inc (IIA) issued a revised International Professional Practices Framework (IPPF). The IPPF has been adopted by the Institute of Internal Auditors–Australia (IIA–A) and was effective from 1 January 2017. The changes mainly affect the International Standards for the Professional Practice of Internal Auditing and have generally been made for clarification purposes.
  • December 2016 — revised Australian Auditing Standards came into effect, some of which impact the operation of audit committees as they change the requirements in relation to an auditor reporting to the board. Examples include the Auditing Standard ASA 700 series, including the new ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report, revised ASA 720 The Auditor’s Responsibility Relating to Other Information and related consequential changes to other relevant auditing standards, such as ASA 260 Communication with Those Charged with Governance and ASA 570 Going Concern.
  • August 2016 — The IIA issued Supplemental Guidance: Applying the International Practices Framework as a Professional Services Firm which provides some clarification about the services of internal auditing as distinct from external auditing.
  • June 2015 — The Australian Securities and Investments Commission (ASIC) issued Information Sheet 203: Impairment of non-financial assets: Materials for directors explaining the responsibilities of a director in connection with the testing of non-financial assets for impairment in the financial report of a company.
  • December 2014 —ASIC re-issued Information Sheet 183: Directors and financial reporting covering the financial reporting responsibilities as a director.
  • March 2014 — the ASX Corporate Governance Council released the 3rd edition of the Corporate Governance Council Principles and Recommendations. These revised guidelines came into effect from 1 July 2014 and broaden Principle 4 to encompass corporate reporting rather than just financial reporting.
  • March 2014 — ASIC issued Information Sheet 196: Audit quality — the role of directors and audit committees (INFO 196) providing guidance to assist directors and audit committees in their role in supporting the quality of the external audit of the financial report.
  • February 2014 — the International Auditing and Assurance Standards Board (IAASB) issued A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality which encourages all participants in the financial reporting supply chain, including audit committees, to challenge themselves to do more to increase audit quality in their particular environments.
  • January 2014 — The Australian Prudential Regulatory Authority (APRA) revised Prudential Standard CPS 510 Governance from 1 January 2015 and the new Prudential Standard CPS 220 Risk Management. Revisions of these guides have since been issued and come into effect from 1 July 2017.