Effective audit committees are integral to good governance over public sector entities. While many public sector entities now have audit committees in place, how effective are they?

In 2019-20 we plan to conduct a performance audit on the effectiveness of audit committees established by public sector entities.

Effective audit committees provide added confidence in an entity’s financial reporting, internal controls, risk management and legislative compliance functions. Effective audit committees can also play a key role in enhancing audit quality by considering whether:

• appropriate controls, systems and financial reporting processes are in place that will support an efficient and effective audit
• concerns and risks raised by auditors, including risks that may impact financial systems or financial reports, are being adequately addressed and monitored
• the auditors have demonstrated enough understanding of the entity and its risks to enable them to effectively plan the audit and appropriately respond to key risks.

A key feature of effective audit committees is ensuring that members have the right mix of skills and experience. Collectively, the committee should possess broad accounting, business, financial management, public sector and relevant industry knowledge.

Audit committees should be chaired by a person who is able to lead discussions, foster the participation of other members and facilitate effective meetings. The chair should be supported by members who can encourage and maintain open and constructive conversations by asking probing questions of both management and auditors. Our experience is that audit committees are more effective at doing this where the members are independent of management.

Audit Committee Guidelines issued by Queensland Treasury identify that it is desirable for at least two members of the committee to be external to the agency, including the Chair. It is our experience that better practice is reflected where all members of the committee are independent of management. As a minimum, however, at least half of the members should be independent of management.

Having independent committee members allows for more robust discussion between the committee, management and its auditors. It also means that the people responsible for monitoring the implementation of audit recommendations are not also the people responsible for implementing them.

In future blogs we will consider other key features of effective audit committees.