February 2008/06
Good practice

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Handbook for Members of Audit Committees in Higher Education Institutions
Committee of University Chairmen

This guide is aimed at members of audit committees of higher education institutions in the UK. It shares current good practice and encourages its appropriate adoption across the higher education sector. The advice was prepared in January 2008.

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Foreword and table of contents (read on-line)

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Contents

Foreword

Message from the CUC Chairman

Introduction

• 1 Good practice principles for audit committees
• 2 Creating an effective audit committee
  • 2.1 Terms of reference
  • 2.2 Choosing the right members
  • 2.3 Financial expertise
  • 2.4 Other skills, experience and personal attributes
  • 2.5 Conflicts of interest
  • 2.6 The audit committee chair
• 3 Running an effective audit committee
  • 3.1 Setting the meeting agendas
  • 3.2 Frequency and timing of meetings
  • 3.3 Meeting attendees
  • 3.4 In camera or private meetings
  • 3.5 Identifying issues early
  • 3.6 Responding to crises
  • 3.7 Resources for the audit committee
  • 3.8 Communication and reporting
• 4 Professional development
  • 4.1 Induction for new members
  • 4.2 Ongoing professional development
• 5 Oversight of financial reporting
  • 5.1 Clarity around the audit committee's role
  • 5.2 The year-end timetable
  • 5.3 Assessing financial statements and related disclosures
  • 5.4 Critical accounting policies, judgements and estimates
  • 5.5 Unusual and complex transactions
  • 5.6 External audit adjustments
  • 5.7 Completeness, clarity and transparency
  • 5.8 Keeping up to date with financial reporting developments
  • 5.9 Being alert to surplus management
• 6 Oversight of governance
  • 6.1 Corporate governance within the higher education sector
  • 6.2 The role of the audit committee
• 7 Oversight of risk management and control
  • 7.1 Responsibility for the system of risk management and internal control
  • 7.2 The system of risk management and internal control
  • 7.3 Reviewing the effectiveness of risk management and internal control
  • 7.4 The 'regular' review process
  • 7.5 The annual review exercise
  • 7.6 Reporting
• 8 Fraud, misappropriation and whistle-blowing
  • 8.1 Responsibilities
  • 8.2 Investigations
  • 8.3 The role of the audit committee
  • 8.4 Whistle-blowing policy
• 9 Oversight of external audit
  • 9.1 The role of the audit committee
  • 9.2 Selecting, appointing and removing the auditor
  • 9.3 Safeguarding the external auditor's independence
  • 9.4 Understanding the audit cycle
  • 9.5 Communication
  • 9.6 Audit reports
  • 9.7 Management letter
  • 9.8 Relationship with the internal auditor
  • 9.9 Monitoring the effectiveness of external audit
• 10 Oversight of internal audit
  • 10.1 Internal audit
  • 10.2 In-house or outsourced internal audit
  • 10.3 Appointment of the internal audit function
  • 10.4 Scope and terms of reference
  • 10.5 Assessing the annual internal audit work plan
  • 10.6 Ensuring that internal auditors have direct access to the audit committee
  • 10.7 Communication and reporting arrangements
  • 10.8 Monitoring the effectiveness of internal audit
  • 10.9 Relationship with the external auditor
• 11 Value for money
  • 11.1 The role of the audit committee
  • 11.2 What is value for money?
  • 11.3 An approach to determining value for money
  • 11.4 A holistic approach
• 12 Assessing audit committee effectiveness
  • 12.1 What does effective mean?
  • 12.2 Assessing effectiveness

Appendices

1. Audit committee: model terms of reference
2. Model letter of appointment for audit committee members
3. A framework (i.e. work plan) for audit committee meetings
4. Specimen year end timetable
5. Corporate governance questions
6. Audit committee annual report: model format
7. Example of a whistle-blowing policy
8. Example policy on using external auditors for non-audit services
9. Example policy on employing former employees of the external auditor
10. Model external audit report for an institution's annual financial statements
11. Evaluation of the external auditor
12. External audit: Model terms of reference
13. Internal audit: Model terms of reference
14. Specimen internal audit plan
15. Specimen internal audit report
16. Evaluation of internal audit
17. Assessment of the audit committee
18. Glossary of terms, abbreviations and acronyms
19. Bibliography

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Foreword

In today's complex and ever-evolving world, audit committees can contribute tremendously to a 'no surprises' environment. In the higher education sector, as in any other sector, an audit committee which operates effectively should be a key feature in a strong, effective governance culture and bring significant benefits to an institution. Such committees are supported by fundamental building blocks: an appropriate structure and foundation, reasonable and well-defined responsibilities, an understanding of current and emerging issues, and a proactive, risk-based approach to its work.

Carefully designed practices can also help an audit committee to maximise its contribution to an institution. However, it is important that each governing body and audit committee should assess its own circumstances - governance structure, financial situation, maturity and issues - when building its own agenda.

Those seeking to strengthen corporate governance and enhance audit committee oversight often look for (and recommend) 'leading' or 'best' practices, and with good reason: they suggest processes, policies or approaches that work. Yet practices that work best for one organisation may not be ideal for another - especially in a governance environment where culture, risk and governance needs can vary dramatically from institution to institution. However, certain guiding principles underlie the effectiveness of every audit committee. Even as specific oversight practices evolve to address changing risks, regulatory requirements and governance needs, the right principles can help to ensure that practices are applied effectively - that is, by the right people with the right information, processes and perspectives.

Developing practices which are based on robust principles - whether terms of reference, recruiting the right members, or focused agendas and rigorous processes - is fundamental in fulfilling the audit committee's responsibilities. This handbook articulates the principles underlying the audit committee's role. It provides an array of non-prescriptive guidance to help audit committees (and those who support them) to gain a better understanding of the processes and issues that drive effective oversight of risk management, control and governance, and of economy, efficiency and effectiveness.

I hope this handbook will help audit committees throughout the higher education sector to identify and achieve their objectives and add value to governing bodies, their institutions and other stakeholders.

Ninian Watt
Chair of the Audit Committee Development Group
Chair of the Board of Governors, Leeds Metropolitan University