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The AICPA Audit Committee Toolkit: Private Companies, 2nd Edition


The AICPA Audit Committee Toolkit: Private Companies helps audit committees of private companies at all levels discover best practices for managing and incorporating their role within the organization. This toolkit takes the guesswork out of effectively establishing and managing an audit committee by furnishing you with dozens of useful tools and the most common forms for effective audit committee operation, as well as tools specially tailored for private companies. The accompanying download features forms and checklists that you can fill out and save to efficiently create, file, and track your documentation.

This new second edition has been updated to include the 2013 revised COSO framework. The checklists and worksheets have been revised to make them more user-friendly. The publication has been updated with relevant regulatory changes. Additionally IFRS guidance has been added.

The AICPA Audit Committee Toolkit series is the cornerstone of the Audit Committee Effectiveness Center, located at

This newly revised edition of the popular audit committee toolkit is written to help audit committees of private companies to achieve best practices for managing and incorporating their role in the organization.

New to this edition of the toolkit

  • Updated with new COSO Framework (May 2013)
  • Improved format for forms and checklists
  • Updated with regulatory changes
  • Includes IFRS guidance

Now with downloadable Microsoft Word tools and checklists, this Toolkit offers a broad sampling of matrices, reports, questionnaires and other pertinent materials specifically tailored to private companies and designed to make audit committee best practices actionable.

Founded in 1887, the American Institute of Certified Public Accountants (AICPA) represents the CPA and accounting profession nationally and globally regarding rule-making and standard-setting, and serves as an advocate before legislative bodies, public interest groups and other professional organizations. The AICPA develops standards for audits of private companies and other services by CPAs; provides educational guidance materials to its members; develops and grades the Uniform CPA Examination; and monitors and enforces compliance with the accounting profession’s technical and ethical standards.

The AICPA’s founding established accountancy as a profession distinguished by rigorous educational requirements, high professional standards, a strict code of professional ethics, a licensing status and a commitment to serving the public interest.

Acknowledgements iii

Preface v

Part I: Audit Committee Administration

Chapter 1 -- Benefits of a Private Company Audit Committee 3

Financial Benefits 3

Better Decision Making 4

Stronger Relationships With Stakeholders 4

Other Benefits 5

Chapter 2 -- Audit Committee Member Roles and Responsibilities 7

Audit Committee Process and Procedures 8

Oversight of the Financial Reporting Process 8

Oversight of Financial Reporting 9

Oversight of the Independent Auditor 9

Oversight of the Internal Audit Function 9

Oversight of Risk Management 10

Oversight of Ethics and Compliance 10

Limitation of Audit Committee’s Role 10

Chapter 3 -- Audit Committee Charter Matrix 11

Chapter 4 -- Audit Committee Financial Expert Decision Tree 29

Audit Committee Financial Expertise 29

Alternative Approaches 30

Audit Committee Financial Expert 31

Chapter 5 -- Sample Request for Proposal Letter for CPA Services and Qualifications (Private Company) 33

Background of ABC Company 34

Services to Be Performed 34

Key Personnel 35

Relationship With Prior CPA Service Provider 35

Other Information 36

Your Response to This Request for Proposal 36

Background on the Firm 36

Experience in Our Industry 37

Expected Approach to This Audit 37

Evaluation of Proposals 37

Chapter 6 -- AICPA Peer Reviews and PCAOB Inspections of CPA Firms: An Overview 39

Peer Review of a CPA Firm 39

Peer Review Reports 40

Common Misconceptions of Peer Review 41

Questions for the Auditor Regarding Peer Review 41

PCAOB Inspection 42

Questions for the Audit Committee Regarding the PCAOB Inspection 42

Chapter 7 -- Guidelines for Hiring the Chief Audit Executive (CAE) 45

Role of the Audit Committee in Hiring and Evaluating the CAE 45

CAE Qualifications 45

Chapter 8 -- Engaging Independent Counsel and Other Advisers 51

Part II: Key Responsibilities

Chapter 9 -- Internal Control: Guidelines and Tool for the Audit Committee 55

Internal Control Primer 55

Internal Control Effectiveness 56

What Internal Control Cannot Do 57

Roles and Responsibilities 57

Internal Control Over Financial Reporting 59

Key Terms in Internal Control Over Financial Reporting Control 60

ICFR Results 62

Conclusion 62

Internal Control--Checklist of COSO Essentials for the Board 63

Chapter 10 -- Fraud and the Responsibilities of the Audit Committee: An Overview 71

Definition and Categories of Fraud 71

Roles of the Audit Committee in the Prevention, Deterrence, Investigation, and Discovery or Detection of Fraud 72

Governance Considerations 73

Expertise of Forensic Accounting Consultants 74

When Fraud Is Discovered 74

Conclusion 75

Chapter 11 -- Whistleblower Policy: Complaint Reporting Procedures and Tracking Report 77

Reasons for Tool 77

Whistleblower Common Practices Checklist 79

Sample Procedures For Handling Complaints (Whistleblower Policy) 82

Statement of Purpose 82

Employee Complaints 82

Director Complaints 82

Other Complaints 83

Processing Complaints 83

Retention of Complaints 83

Chapter 12 -- Issues Report From Management 85

Defining Significant Issues, Critical Accounting Estimates, Significant Unusual Transactions, and Judgments 85

Sample Issues Report From Management 87

Issues Report From Management 88

Chapter 13 -- Guidelines and Questions for Conducting an Audit Committee Executive Session 89

What Is an Executive Session? 89

Additional Questions to Consider: Tool for Audit Committee Members 91

Chapter 14 -- Independent Auditor Communications with Audit Committee 111

Background 111

Objectives of Communications 111

Timing of Communications 112

1 Terms of the Firm’s Audit Engagement 112

2 Inquiries About Matters Relevant to the Audit 113

3 Audit Strategy, Timing, and Approach 113

4 Evaluation of the Quality of the Company’s Financial Reporting 114

5 Other Significant Communications 115

Illegal Acts 117

Internal Control Matters 117

Fraud 118

Chapter 15 -- Responding to the Identification of a Material Weakness -- A Checklist for the Audit Committee 119

Background 119

Internal Control Evaluation Requirements 119

Responding to the Identification of a Material Weakness 120

Additional Resources 120

Steps the Audit Committee Can Consider If Faced With an Adverse Report on Internal Control 121

Part III: Performance Evaluation

Chapter 16 -- Evaluating the Internal Audit Function: Questions to Consider 127

Chapter 17 -- Evaluating the Independent Auditor: Questions to Consider 131

Questions for Audit Committee Members 131

Questions for Management and/or Internal Audit 134

Chapter 18 -- Conducting an Audit Committee Self-Evaluation: Questions to Consider 137

Part IV: Other Tools

Chapter 19 -- Enterprise Risk Management: A Primer on the COSO Framework 143

Enterprise Risk Management Primer Basics of ERM and Its Relationship to Internal Control 144

Relationship Between COSO Enterprise Risk Management -- Integrated Framework and Internal Control -- Integrated Framework 145

Other Key Terms in Enterprise Risk Management 147

Portfolio View of Residual Risk Example 148

Roles and Responsibilities 148

Limitations of Enterprise Risk Management 149

Conclusion 150

Enterprise Risk Management: A Tool for Strategic Oversight 150

Chapter 20 -- Enteprise Risk Management: A Tool for Strategic Oversight 151

Chapter 21 -- SEC Final Rule on Audit Committee Financial Experts 157

A Audit Committee Financial Experts 157

1 Title of the Expert 157

2 Disclosure of the Number and Names of Audit Committee Financial Experts 158

3 Disclosure of Independence of Audit Committee Financial Experts 158

4 Definition of “Audit Committee Financial Expert” 159

5 Safe Harbor from Liability for Audit Committee Financial Experts 164

6 Determination of a Person’s Status as an Audit Committee Financial Expert 165

7 Location of Audit Committee Financial Expert Disclosure 165

8 Change in Item Number 165

Chapter 22 -- IFRS Implementation 167

Implementation 167

Stage 1: Assessment 168

Stage 2: Conversion 168

Stage 3: Integration 169

Conclusion 170

Chapter 23 -- Resources for Audit Committees 171