Westlake Village, Calif. (March 31, 2004) -- While certain audit committee practices lead to higher satisfaction with the financial audit process, only 20 percent of audit committees practice a majority of them, according to a study of audit performance since the implementation of Sarbanes-Oxley by J.D. Power & Associates.
Audit committees from two industries that are subject to a greater amount of regulation and scrutiny -- financial services and energy/utilities -- appear to do the best job of implementing best practices, noted Ron Conlin, a partner at J.D. Power & Associates. The Audit Committee Best Practices Report is based on interviews with 758 audit committee chairs and 900 chief financial officers at Securities and Exchange Commission-listed companies surveyed between July and September 2003.
According to the report, implementing certain best practices leads to higher ratings of the audit and of auditor performance, which drives higher confidence in the accounting industry.
Best practices noted in the report include:
- Communicating disputes directly between the auditor and the audit committee, rather than through management, improves performance ratings. Currently 72 percent of audit committees learn about disagreements from management rather than directly from the auditor.
- Excluding management from some meetings increases audit chair confidence in the audit. The majority of audit committees conduct four to six meetings annually that exclude company management.
J.D. Power also noted that audit committees that meet with external auditors seven or more times per year rate the performance of their external auditor significantly higher. On average, most audit committees meet with their external auditor just four to six times annually.
In addition, the report findings indicated that audit satisfaction suffers when audit committee chairs spend more than 100 hours annually on board and committee activities. Audit committee chairs currently spend an average of 51 to 150 hours annually on board-related activities, including preparation, meetings and conference calls.
-- WebCPA staff
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