In the current environment, many audit committees
are considering how they should discharge their
responsibilities in relation to the effectiveness
and efciency of the external audit arrangements.
Tendering the audit is being encouraged by regulators,
but is by no means the only available option under
this responsibility – audit committees are capable
of evaluating the performance of their independent
auditors and holding them accountable for the
performance of their professional duties. Indeed, it
is best practice for audit committees to evaluate the
adequacy, effectiveness, independence, scope and
results of their audit arrangements every year.
A review of the audit process, the effectiveness and
performance of the audit team, and the output, quality
and cost effectiveness of the audit is a valid alternative
to the tender approach, subject to regulation. Not only
does such a review help optimise the performance
of auditors; it also encourages good communication
between the auditor and the audit committee.
Such a review should evaluate the relationship
between the auditor and executive management
and ensure that an appropriate balance exists.
The relationship should not be so close as to put at
risk the auditors’ independence and objectivity yet,
at the same time, should be such that management
and auditors can work together in an environment of
constructive challenge.
In determining the appropriateness of the external
auditor, the audit committee should have full regard to
the auditor’s competence, the quality and efciency of
the audit, and whether the audit fee is appropriate in
relation to size, complexity, and risk and control prole
of the company.
Evaluation of the
external auditor
This document provides a framework for an audit
committee to carry out a formal review of the
adequacy, effectiveness and efciency of the
external auditor.
This assessment process focuses on your personal
perception of the external audit – it does not seek to
evaluate individuals and their personalities.
The audit committee chairman should determine
who is asked to complete the questionnaire. It is not
unusual for it to be completed by audit committee
members, the CFO; the heads of major business units/
subsidiaries and others who have regular contact with
the external auditor. The internal auditor may also be
asked to comment.
The questionnaire takes about 10 minutes to
complete and should be completed in the
following manner:
• Using a scale of ‘Yes’, ‘Partially Agree’, ‘No’, please
tick your response to each question.
• ‘Not sure’ can be used where you do not have
enough information to form a view.
• ‘Not applicable’ can be used where you don’t have a
view on the matter in question.
• All responses will be treated as anonymous
unless the individual completing the questionnaire
wishes otherwise.
KPMG Evaluation of the External Auditor
A. Calibre of the external audit rm
B. Quality processes
Yes
Partially
agree
No
Not
sure
Not
applicable
Yes
Partially
agree
No
Not
sure
Not
applicable
1. The external audit rm has a strong
reputation?
2. Recent or current litigation against the
rm will not have a signicant adverse
impact on the audit rm’s reputation?
3. The audit rm has a strong presence
in this industry?
4. The external audit rm has the size,
resources and geographical coverage
required to audit this company?
1. The audit rm has strong internal quality
control processes in place? (Factors to be
considered include the level and nature
of review procedures, the approach
to audit judgements and issues,
independent quality control reviews and
the external audit rms approach to risk.)
2. The audit rm has sufcient headcount
in the quality control function to support
audit team members?
3. The remuneration and evaluation
arrangements of audit partners and
other key audit individuals do not
impair the external auditor’s objectivity
and independence?
4. Relevant and qualied specialists are
involved in the audit process?
C. Audit team
1. Audit team members have appropriate
qualications for their roles?
2. Audit team members have sufcient
industry focus for their roles?
3. Audit team members understand our
business and its issues?
4. Audit team members are proactive in
their approach?
5. Audit team members are responsive to
our requests?
Yes
Partially
agree
No
Not
sure
Not
applicable
6. Audit team members are consistent in
their approach to matters?
7. There is sufcient continuity of staff to
ensure a smooth audit?
8. The audit rm has a stable attrition
rate in the current year as compared to
the industry average?
9. The audit rm’s attrition rate is
reective of the turnover seen in the
audit team?
10. Where applicable, the audit rm
explained how the changes or
rotations of lead engagement partner
or senior engagement team personnal
would be handled and managed?
11. The engagement partner’s and other
senior personnel’s involvement in the
audit is appropriate and sufcient?
12. There is a strong audit team that works
together effectively?
13. The audit rm provides relevant
and timely training for the audit
team members?
D. Audit scope and approach
1. The audit plan appropriately
addresses the areas of higher risk?
2. The audit team communicated their
audit plan in advance of the audit?
3. The audit team identied changing
risks and circumstances and
adjusted the audit plan accordingly
with sufcient communication to
the Audit Committee?
4. The audit team comprised an
appropriate number and level
of staff?
5. Partners and managers were
involved sufciently throughout
the audit?
6. Appropriate specialists are involved
in the audit process (IT, tax,
Treasury etc.)?
7. All signicant operations are
covered by the external audit?
8. The audit approach is consistent
across the team and audit locations?
Yes
Partially
agree
No
Not
sure
Not
applicable
9. Where applicable, the audit team
highlights how they supervise other
accounting rms involved in the external
audit for the Group?
10. The audit team work to appropriate
materiality levels?
11. The audit team complete their work in
line with the agreed timetable?
12. The external audit team’s approach to
seeking and assessing management
representations is appropriate?
13. The audit team has an effective working
relationship with internal audit?
14. The audit team incorporates a sufcient
amount of data analytics and technology
in the performance of the audit?
E. Communications
1. All communications from the audit team
are clear and relevant?
2. Issues are discussed on a timely basis?
3. The audit committee/auditor
relationship operates on a ‘no
surprises’ basis?
4. The external audit rm have open
lines of communication with the
audit committee.
5. The audit partner maintains contact
with the audit committee on an informal
basis ‘between meetings’?
6. The audit team communicates how the
audit rm’s leadership, through its tone
at the top, emphasises audit quality and
holds itself accountable for the audit
rm’s system of quality control?
7. Communications accurately detail the
issues encountered during the audit and
their resolution; including:
a. the business risks relevant to
nancial reporting objectives, the
application of materiality and the
implications of their judgements
in relation to these for the overall
audit strategy, the audit plan and
the evaluation of misstatements
identied and audit locations?
b. the propriety of signicant accounting
policies (both individually and in
aggregate)?
Yes
Partially
agree
No
Not
sure
Not
applicable
c. the propriety of management’s
valuations of the material assets and
liabilities and the related disclosures
provided by management?
d. the effectiveness of the system
of internal control relevant to
risks that may affect nancial
reporting (including any signicant
weaknesses)?
e. other risks arising from the business
model and the effectiveness of
related internal controls (to the
extent, if any, the auditor has
obtained an understanding of such
matters)?
f. other matters relevant to the board’s
determination of whether the
annual report is fair, balanced and
understandable?
g. the risk of fraud in the nancial
statements?
8. Audit differences are discussed and
resolved efciently?
9. There is good communication and
coordination between local audit
teams and the ‘head ofce’ audit team?
10. The external auditor advises the audit
committee about new developments
regarding risk management, corporate
governance, nancial accounting and
related risks and controls on a timely
basis?
11. The audit team seek feedback on the
quality and effectiveness of the audit?
12. The audit team responds to feedback
received regarding the audit?
F. Technical expertise
1. Audit team members have sufcient
technical experience for their roles?
2. The audit team responds to technical
questions with a denitive answer
within an agreed time frame?
3. The audit team’s advice reects our
commercial considerations in an
appropriate manner?
4. The audit rm provide appropriate
technical support through seminars
and publications?
Yes
Partially
agree
No
Not
sure
Not
applicable
G. Audit governance and independence
1. External audit partners and staff
demonstrate a high degree of integrity
in their dealings with the audit
committee.
2. The external audit rm discuss
their internal process for ensuring
independence with the audit committee.
3. Management respect the external
auditors as providers of an objective
and challenging audit process.
4. The level and nature of entertainment
between the external audit rm and
management is appropriate.
5. The nature of non-audit services is
appropriate and adequate safeguards
exist to preserve audit objectivity and
independence.
6. The external auditor’s relationship
with both the audit committee and
management is appropriate.
7. The audit rm has a formal process
in place to remedy the independence
breaches?
H. Audit fee
1. The external audit fee is appropriate
given the scope of the external audit?
(Consider how the audit fee compares
with other similarly sized companies
in this industry a fee that is either too
high or too low can be of concern.)
2. Differences between actual and
estimated fees are handled
appropriately?
3. The relationship between audit and
non-audit fees is appropriate?
Yes
Partially
agree
No
Not
sure
Not
applicable
Yes
Partially
agree
No
Not
sure
Not
applicable
I
. Comparison of [Company name]’s external audit experience with other external audits you may
have experience of:
Issue
Comments
© 2019 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member rm of the KPMG network of independent member rms afliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Singapore.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate
and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation.
kpmg.com/socialmedia
kpmg.com.sg
