Continuous improvement

6.1
A structured and formal evaluation of an audit committee’s performance can help to ensure that the audit committee delivers on its charter, and can help the audit committee continuously enhance its contribution to the public entity. The evaluation may be a self-assessment with input from key stakeholders, or involve facilitation or review by an external party. Self-assessment is generally considered to be an effective method of evaluation for governance committees.

6.2
An audit committee should complete a candid assessment, at least every two years, to evaluate its performance and delivery against its charter. The evaluation should seek input from the governing body or departmental chief executive, management, and the internal and external auditors. If an audit committee has been recently set up, it may wish to consider an evaluation after 12-18 months.

6.3
The results of the assessment should be provided to the governing body or chief executive, who should consider the findings and any recommendations. If required, the governing body or chief executive should ensure that appropriate action is taken to enhance the audit committee’s performance.

6.4
A well designed evaluation process should identify any substantive issues about the independence of the audit committee and its relationship with management that may affect the ability of the audit committee to function well.

Assessing audit committee members’ performance

6.5
We would expect the chairperson of the audit committee, when considering recommending that a member’s tenure be extended or that a member be reappointed, to assess that member’s performance. In this assessment, the chairperson could consider whether the member has:

• a good understanding of, and commitment to, the audit committee’s roles and responsibilities;
• displayed the ability to act objectively and independently;
• the ability to take difficult but constructive stands at meetings when necessary;
• a good understanding of the public entity’s business; and
• displayed a willingness to devote the time needed to prepare for, and participate in, audit committee meetings.

Committee secretariat

6.6
The effectiveness of an audit committee partly depends on the members having enough time to consider the financial and other information placed before them. The information will often be detailed and complex, and should be distributed at least a week before an audit committee meeting.

6.7
The committee secretariat needs to ensure that meetings are scheduled, minutes are taken, and supporting papers are circulated. Minutes should include not just the final decisions the audit committee makes but also the rationale supporting those decisions. The minutes should be approved by the chairperson and circulated promptly to other audit committee members, the governing body or chief executive, and observers as appropriate.

6.8
The committee secretariat is responsible for ensuring that agendas and supporting papers, approved by the chairperson of the audit committee, are distributed to audit committee members and observers (where appropriate) with enough time to allow all participants to read all papers.

6.9
The secretariat also has an important role in ensuring that structured communication channels exist between the governing body or chief executive and the audit committee, and that members of the governing body or chief executive receive reports that keep them adequately informed of the audit committee’s activities. Recommendations to the governing body or chief executive should be supported by papers, such as the minutes containing the rationale for the recommendation.

Conducting meetings

Number and timing of meetings

6.10
Normally, an audit committee would meet at least three to four times a year, and one of those meetings would be scheduled to allow the audit committee to consider the public entity’s financial statements. The number and duration of audit committee meetings will depend on the size and complexity of the audit committee’s responsibilities. The audit committee should decide, with the governing body or departmental chief executive, the number of meetings needed for the year after considering:

• the roles and responsibilities of the audit committee;
• the maturity of the audit committee and audit arrangements;
• the level and/or volume of audit activity;
• significant developments or emerging risks for the public entity – for example, restructuring, policy initiatives, or new programmes; and
• the potential resource implications and management reporting burdens against the benefit to the audit committee and the public entity of more frequent meetings.

Figure 1
Example of the work cycle of an audit committee

* Or, in a government department, the chief executive

6.11
Each year, the audit committee should plan its meetings for the year, including the dates, location, and agenda items. When planning, the audit committee should ensure that it covers all the responsibilities outlined in its charter.

6.12
The audit committee’s charter should require the chairperson of the audit committee to hold a meeting if asked to do so by another audit committee member or by the governing body or chief executive.

Attending meetings

6.13
The audit committee may ask management, and internal or external audit representatives, to attend audit committee meetings for particular agenda items. Internal and external auditors should also receive all audit committee agenda papers and be able to request attendance at meetings.

6.14
We would expect the audit committee to meet with the internal auditor without management present and to meet with the external auditor without management and the internal auditor present at least once a year.

6.15
As appropriate, members of the senior management team, including the chief executive, may be invited to attend audit committee meetings to participate in specific discussions or provide strategic briefings.

6.16
Audit committee members should be appointed for their particular skills and experience, so members should not send proxies if they are unable to attend. However, arrangements for a replacement may need to be made when management representatives on the audit committee are away for a long time or act in positions that would exclude them from membership.

Quorum

6.17
The quorum for an audit committee should be a majority of audit committee members.

6.18
Audit committees with independent members need to consider specifying how many of those members should be present. For example, a local authority may have three councillors (one of whom is the chairperson) and two independent members on the audit committee. In these circumstances, a quorum could be at least three members including at least one independent member.

Meeting agenda

6.19
The efficient running of each meeting can be helped by:

• ensuring that the meeting starts and finishes on time;
• at the start of each meeting, members agreeing the priority and the time to be devoted to each agenda item; and
• before each meeting, each member being briefed by the secretariat on the major issues to be discussed.

6.20
Before the meeting, the audit committee chairperson should be responsible for setting and approving the agenda, which would have been prepared with senior staff.

6.21
Other components of good practice may involve setting time aside before each meeting for the audit committee members to discuss the papers and any issues they wish to discuss in more depth with management. This “committee-only” time also allows audit committee members to clarify any questions they have with other members before the management representatives join the meeting.

Minutes of audit committee meetings

6.22
Minutes of the audit committee meetings should be clear and concise, providing a summary of the outcomes and actions with clear responsibilities and deadlines attached. Draft minutes should be distributed promptly to the chairperson for checking, and circulated to audit committee members.

6.23
It is good practice for audit committee minutes to be circulated with the papers of the next governing body meeting and for the chairperson of the audit committee to provide an update to the governing body on the contents of the minutes.

Confidentiality and conflicts of interest

6.24
Audit committee members should ensure that they safeguard and treat as confidential all the information they receive.

6.25
Audit committee members should ensure that conflicts of interest are declared and managed.

Access to staff

6.26
The audit committee charter should provide the audit committee chairperson with the authority to invite public entity staff to attend meetings, and require the public entity to provide information that is relevant to the audit committee’s responsibilities, on the request of the audit committee or individual members. It is expected that the chief executive would be made aware of any such invitations by the audit committee.

6.27
To enhance the audit committee’s independence and its capacity to fully appreciate relevant issues, the audit committee charter should authorise the audit committee to seek independent professional advice, as and when required.