BOD and Audit Procedures

Before the current corporate governance guidelines, the board of directors would typically has consisted of a managing director (or CEO), finance director, sales and marketing director and operations director. This is the top layer of management of the company and responsible for directing and controlling the company.

Now, NEDs are added to the board to take part in board meetings, vote, warn advise etc. However, they do not have day-to-day management responsibility: that’s for the executive directors. NEDs also feature on the audit committee, nomination committee and remuneration committee and will form the majority (or the entire) membership of those committees.

Audit assertions are what the auditor has to verify about each figure on the FS: accuracy, completeness, valuation, existence etc. To do that, audit procedures have to be devised eg physically inspecting a non-current asset to verify existence. Another procedure might be to inspect the fixed asset register, looking for dates of last physical inspection, to provide evidence that assets have been physically checked by client staff that year.

Tests of control are one type of audit procedure. If controls are tested and found to be good, then that gives confidence about, say, the accuracy, of a figure. Inspecting the FA register would be a test of control.

Additionally, substantive tests will also be performed after the period end to try to directly verify the assertions made by the figure. Physical inspection of the asset by the auditor would be a substantive procedure.

Hope that helps

In the definitions that accompany its Auditing Standards, the APB notes that those charged with governance will normally be the board of directors (or equivalent) that is charged with the company’s corporate governance. If a limited company has an audit committee or equivalent then that committee will often have the governance function delegated to it.

Some small entities are owned and managed by single individuals. Therefore whilst the board is the entity charged with governance it in practice will be the individual to whom you would refer. Other bodies, for example charities, might have a board of trustees or governors who perform the role.

With respect to your second query, if high reliance can be placed on controls, then less substantive work has to be done. However, even with ‘perfect’ controls, some substantive work would always be carried out on material items. The risk arising from not doing so is simply too great.