The auditor must interact with the audit committee on a regular basis and is hired or fired by the audit committee. Yet, the auditor is supposed to evaluate the audit committee and determine whether it is carrying out its functions properly.
Required
a. What are the primary factors the auditor should consider in evaluating the effectiveness of the audit committee?
b. Given the factors identified in part (a), outline an audit program to evaluate the effectiveness of the audit committee.
c. Assume the auditor concludes the following regarding the audit committee:
(1) Only one member is independent,
(2) The audit committee does meet quarterly and is efficient in getting its work done in an hour or less, and
(3) The committee has decided to cut out executive sessions with the internal and external auditors because they receive enough input during the regular audit meetings. Do these three items constitute a significant deficiency, a material weakness, or neither? Explain your rationale.