Despite pandemic-related concerns about the ability of auditors to work effectively, 98% of audit committee members said in a new survey that audit quality either increased (32%) or stayed the same (66%) over the past year.
The coronavirus pandemic caused auditors to implement remote procedures during times when travel and site visits were challenging. Even when pandemic restrictions were eased, some auditors have continued to use some of the remote procedures that they have found helpful since the start of the pandemic.
In the survey report by the Center for Audit Quality (CAQ) and Deloitte, 85% of audit committee members said the competence of the engagement team and strong communication between the engagement partner and the audit committee are the most important factors in audit quality.
Many of the survey's 246 respondents from audit committees of primarily large-cap, public companies in the United States also cited the quality of firm resources and innovations in technology as contributing to audit quality.
Focus on cyber
Meanwhile, amid the shift to digital operations that has been accelerated during the pandemic, many audit committees are devoting substantial time to threats posed by cybersecurity risks.
More than half (53%) of respondents said cybersecurity is a top area of focus on the audit committee's agenda, and almost half (48%) identified data privacy security as a top area of focus.
As would be expected, almost all (96%) of the audit committee members said financial reporting and internal controls were a top focus on their agenda, and 86% cited fraud risk.
Other top areas of focus were ethics and compliance (48%), third-party risk (47%), and enterprise risk management (42%).
"The good news is most audit committee respondents recognize their primary responsibilities, which include oversight of financial reporting, internal controls, and the independent auditor," Krista Parsons, Audit & Assurance managing director with Deloitte's Center for Board Effectiveness, said in a news release. "The challenge in the future is maintaining this focus on their core responsibilities while addressing emerging risks and potential new areas of oversight."
Parsons said the audit committee doesn't necessarily need to oversee all new risks, adding that the full board or another committee may be in a better position for that oversight.
ESG on the radar
Environmental, social, and governance (ESG) issues have grown in prominence in recent years and may require a growing amount of attention from audit committees.
About two-thirds (66%) of audit committee members said their company issues a sustainability or ESG-related report, and 69% obtained or are actively discussing obtaining third-party assurance on at least one component of ESG or sustainability data. But just 10% of respondents said their audit committees have oversight responsibility for ESG reporting.
Audit committees' role in overseeing financial reporting and internal controls may lead them to have oversight over certain components of ESG reporting, according to the report.
"Audit committees are critical to high-quality financial reporting that is in turn critical to functioning capital markets. This report provides valuable insights for audit committee members seeking more information about their peers' leading practices," said Julie Bell Lindsay, CEO of the CAQ. "As the audit environment continues to evolve, we encourage audit committees to understand their role in overseeing risk areas and emerging issues."
— To comment on this article or to suggest an idea for another article, contact Ken Tysiac at Kenneth.Tysiac@aicpa-cima.com.