ACCA AAA · Chapter 2
Corporate governance and the auditor
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Effective oversight reliable reporting + audit
Why governance matters
- Ownership and management are separate: accountability is needed
- Strong oversight supports reporting, controls and audit independence
UK Corporate Governance Code
- Apply Principles; comply with Provisions or explain departures
- Judge the reason, impact, risks and proposed remedy
Scenario indicators
- Chair/CEO separation; independent NEDs; board refreshment
- Consider relationships, tenure and financial incentives
Audit consequence
- Weak governance raises concerns about bias, fraud and controls
- Reassess risks, scepticism, strategy and TCWG communication
Board responsibility
- Direct and control the company; maintain risk and control framework
- Assess material controls and report on effectiveness
Audit committee composition
- Independent NEDs: at least 3, or 2 for a smaller company
- Relevant financial and sector competence; board chair excluded
Reporting and controls
- Challenge judgements, policies, disclosures and going concern
- Review risks and control deficiencies; management operates controls
Exam application
- Identify the weakness, its effect and the committee action
Appointment
- Committee recommends auditor and approves fees and terms
- Shareholders formally appoint the external auditor
Planning and findings
- Challenge scope, risks, materiality, resources and changes
- Review significant findings and management response
Independence and quality
- Monitor relationships, non-audit services and fees
- Assess scepticism, skills, challenge and evidence of audit quality
Exam application
- Specify the action and how it improves audit effectiveness
Verify controls
- Assess design, implementation and operating effectiveness
- Inspect, observe, enquire, reperform and analyse exceptions
Develop controls
- Advise on gaps and improvements; management operates controls
- Preserve internal audit objectivity
Report deficiencies
- State deficiency, cause, consequence and recommendation
- Agree owner/timing; report and follow up corrective action
Committee oversight
- Review authority, work, resources, findings and response
- If no internal audit, consider annually whether one is needed
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