External

audit scope
Audit Committee Questions
Audit Committee Institute part of
KPMG Board Leadership Centre

In the current environment, audit committees, regulators and other stakeholders are
sharpening their focus on audit quality. A thorough review of the audit plan is an essential
starting point to ensure audit quality is at the level it should be.

Scoping Reliance Audit

Risk-based
Materiality and audit on internal methodology
approach
coverage controls and tools

Audit committee oversight essentials …

As part of its task in helping boards discharge their
duties by providing independent oversight over external
audit, audit committees are tasked with assessing and
monitoring the effectiveness of the external audit plan.
The audit committee needs to understand the scope of
the audit and how it is to be approached. An effective
way to achieve this is to hold a meeting with the
external auditor prior to the auditor finalising the audit
plan. The discussions may uncover areas where the
committee assumes that work is done but is not, and
other areas where audit effort is directed but of which
the audit committee may be unaware. Discussion
should also focus on what the auditor considers to be
the significant accounts and the transactions posing the
most risk.
The audit committee should determine that an
appropriate audit plan is in place. It should carefully
consider the appropriateness of the business risks
identified by the external auditor and whether, because
of the audit committee’s own knowledge of the
organisation’s risk environment, other risks should also
be taken into account. This focus applies both at a
strategic level – those risks that are fundamental to the
achievement of the entity’s strategy – and at the more
detailed operational level: those risks that affect day-to-
day operations, the recognition of revenue and costs,
the custody and value of assets, and the completeness
of recognition of liabilities.
In general terms, the audit committee should
understand inter alia:
x Audit materiality.
x The areas where the external auditor intends to
perform detailed substantive testing and those areas
where the auditor intends to rely on internal controls.
x Whether divisions or subsidiaries receive adequate
coverage, particularly those that are considered most
risky or remote either geographically or culturally.
x Whether other audit firms are involved in auditing
specific geographic locations or group entities that
might impact on the organisations overall risk profile.
The audit committee should also seek to understand
whether, and to what extent, the external auditor is
content to rely on the work of internal audit in support of
their audit work, and to what extent they will be
reviewing the work of the internal auditor.
At the pre-audit planning meeting, the audit committee
may determine that the external auditor should perform
additional work to satisfy the needs of the organisation,
such as increased internal control testing or aspects of
the internal audit work. In such circumstances, the audit
committee should consider the effect this may have on
the effectiveness of the company’s overall
arrangements for internal control.

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Key questions for audit committees to consider:
Audit approach Cost and staffing
Key questions for audit committees to consider:
- What are the fundamentals of your audit strategy and - Will there be effective coordination of audit procedures
audit approach in general? Are there significant changes between the internal and external audit functions?
Audit
from approach
previous years? Cost and
- What staffing
are the estimated external audit fees for this
- What are the significant audit risks? What audit year’s audit? What caused the increase/decrease from
- What are do
approach theyou
fundamentals of areas
plan in these your audit strategy and
(controls-based - Will thereyear?
the prior be effective coordination of audit procedures
audit
versusapproach
detailed in general? Are
substantive there significant
testing)? How have changes
you between the internal and external audit functions?
from previous years? - Are the audit fees and resources adequate in light of the
assessed the risk of material misstatement? - What arecomplexity
size and the estimatedof theexternal
company’saudit business?
fees for this
-- What
What are the consider
do you significant
toaudit
be therisks?
key What audit related
fraud risks year’s audit? What caused the increase/decrease from
approach do you plan in these areas (controls-based - Have there
the prior been any significant changes on the
year?
to financial reporting? What procedures will be engagement team?
versus detailed
performed substantive
to address testing)?
the risk Howmisstatement
of material have you - Are the audit fees and resources adequate in light of the
assessed the risk of material misstatement?
due to fraud, including procedures relating to the risk of - In case
size andofcomplexity
significantofnon-routine
the company’stransactions
business?taking
- What do you consider
management override to
of be the key fraud risks related
controls? place in the year under audit (e.g. a major acquisition or
- Have there been
restructuring), anyteam
is the significant changestoonabsorb
agile enough the the
- to financial reporting? What procedures
What are the materiality levels used in the willaudit?
be engagement team? both in terms of time commitment
performed additional workload,
Have there to address
been the risk of
any changes material
versus priormisstatement
year? - In case
and of significant non-routine transactions taking
expertise?
due to fraud, including procedures relating to the risk of
- What were the
management key factors
override considered in determining
of controls? - place
For in theaudit
which yearareas
underoraudit (e.g. a major
procedures are youacquisition
planning or
to
materiality? restructuring), is the team agile enough
involve specialists (e.g. tax, IT, financial risk to absorb the
- What are the materiality levels used in the audit? additional workload, bothetc.)?
in terms of time commitment
- Will
Havecertain significant
there been accountsversus
any changes be audited using lower
prior year? management, actuaries,
materiality levels because of the differences in the level and expertise?
- What - How do your ensure that the audit team, including
of riskwere
and/or the keyparty
third factors considered in determining
expectations? - For which audit
specialists, areas
adheres toor procedures
any are you planning to
relevant independence
materiality? involve specialists (e.g. tax, IT, financial risk
- How do you integrate data analysis in your audit requirements?
- Will certainHow
approach? significant accounts
does the be audited
anticipated use ofusing
data lower management, actuaries, etc.)?
- What is the plan for audit partner rotation? What steps
analysis relate to your assessment of the riskinofthe level
materiality levels because of the differences - How
will bedotaken
your to
ensure that the
contribute to aaudit team,
smooth includingto the
transition
of risk and/or
material third party Do
misstatement? expectations?
you compare results specialists, adheres to any relevant independence
new partner?
- How do you
between integrate data
departments analysis in your
and geographical audit to
locations requirements?
approach?
identify How does
unusual trendsthe anticipated
and outliers? use of data - What is the plan for audit partner rotation? What steps
- analysis
How doesrelate
yourtoaudit
yourapproach
assessment and of the risk
timeline of
ensure that will be taken to contribute to a smooth transition to the
material misstatement?
significant Do youare
matters and issues compare results
identified, new partner?
between departments
communicated and geographical
and resolved on a timely locations
basis? to
identify unusual trends and outliers?
- How does your audit approach and timeline ensure that
significant matters and issues are identified,
communicated and resolved on a timely basis?
Accounting and reporting Different activities, subsidiaries
matters and geographies
- What procedures have you planned to audit/review the - How do you determine which activities/subsidiaries/
Accounting and reporting
(interim) financials? Different
geographies activities,
to audit? Do subsidiaries
you believe any of the group’s
-matters
What changes in accounting standards have occurred and geographies
activities/subsidiaries/geographies are riskier than the
recently or are likely to occur? How will they affect the others and how is this factored in to the audit scope?
- What procedures
financial statements have
andyou planned
your to audit/review the
audit procedures? - How do areas
Are any you determine
that werewhich activities/subsidiaries/
considered high risk in prior
(interim) financials? geographies
years no longer to audit?
considerDo high
you believe
risk? any of the group’s
- What are the critical accounting policies of the company activities/subsidiaries/geographies are riskier than the
- Whathow
and changes in accounting
will you standards
satisfy yourself have
that they occurred
are still fit for - Will members of the lead engagement audit team visit
recently or are likely to occur? How will they affect the others and howIf is
key locations? this
no, whyfactored
not? in to the audit scope?
purpose? Are any areas that were considered high risk in prior
financial statements and your audit procedures? - Are other audit firms involved in the audit? If so, do you
- What are the most significant accounting estimates and years no longer consider high risk?
- What are the
judgments critical
made accounting policies
by management that willof receive
the company participate in their scope setting process? How do you
and howattention
will you satisfy - Will members of thetheir
leadwork
engagement audit team visit
specific in your yourself that they are
audit procedures? Howstill fit for determine whether
key locations? If no, why not?
is adequate?
purpose?
satisfied are you about the process that management - What “coverage” (e.g., percent of revenue, operating
- What are
follows in the mostthose
making significant accounting
estimates estimatesHow
and judgments? and - Are other
profit, totalaudit firms
assets) is involved
expectedinfrom
the audit? If so, do you
the activities/
judgments
does made
the audit by management
approach deals withthat willaccounting
these receive subsidiaries/geographies selected for testing? do you
participate in their scope setting process? How
specific
estimates attention in your audit procedures? How
and judgements? determine whether their work is adequate?
- satisfied are you about
Do you believe management the process
is underthat
anymanagement
pressure to - What “coverage” (e.g., percent of revenue, operating
follows in making
accept less those estimates
than high-quality andreporting?
financial judgments? How How profit, total assets) is expected from the activities/
does the audit approach deals with these
did you factor this risk into the audit approach? accounting subsidiaries/geographies selected for testing?
estimates and judgements?
- Do you believe management is under any pressure to
accept
Contact Usless than high-quality financial reporting? How
did you factor this risk into the audit approach? KPMG Services Pte Ltd
Roger Tay Irving Low Emilie Williams 16 Raffles Quay
Partner, Head of Audit Partner, Head of Advisory Director, Risk Consulting #22-00 Hong Leong Building
www.kpmg.com/globalaci
T: +65 6213 3388 T: +65 6213 2071 T: +65 6411 8007 Singapore 048581
E: rtay@kpmg.com.sg E: irvinglow@kpmg.com.sg E: emiliewilliams@kpmg.com.sg T: +65 6213 3388 F: +65 6225 0940
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 endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date
www.kpmg.com/globalaci
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.

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with
The
KPMG information contained
International herein(“KPMG
Cooperative is of a general nature and
International”), is not entity.
a Swiss intendedAll to address
rights the circumstances
reserved. Printed in the of any particular
United Kingdom.individual
The KPMG or entity.
name
Although
and logo arewe registered
endeavor to provide accurate
trademarks and timely
or trademarks information,
of KPMG there can
International. be no guarantee
Designed by CREATE that such information
| December is accurate as of the date
2017 | CRT89155
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.

© 2018 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the United Kingdom. The KPMG name
and logo are registered trademarks or trademarks of KPMG International. Designed by CREATE | December 2017 | CRT89155