How to conduct an effective audit committee executive session
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How to conduct an effective audit committee executive session

1 year ago · 3 min read

Audit committees (as well as full boards) hold executive sessions with executive management, finance leaders, the leader of the internal audit team (if applicable), and the independent external auditor to gather information needed to help fulfill their oversight responsibilities. This article and the accompanying tool explain what executive sessions are and how they can be used most effectively.

What is an executive session?

An executive session is a “meeting within a meeting” led by the audit committee to gather information from a specific party in a one-on-one setting that promotes open and honest communication. The audit committee determines the appropriate attendees for each executive session with the intent of creating a “safe” environment—typically, just the audit committee and the individual selected for the executive session.

What are some best practices for executive sessions?

Conduct them regularly. The audit committee should plan ahead and proactively initiate executive sessions with specific individuals on a regular basis so that any issues or information that need to be drawn forth will be discoverable. The audit committee would want to avoid asking in an open session whether an individual has anything to discuss in an executive session; that question alone could put the individual in an awkward position in front of others and deter the purpose of executive sessions altogether.

In fact, have at least one at every meeting. It is best practice for executive sessions to occur at every audit committee meeting, though not every individual need be in an executive session at every meeting. For example, it is appropriate for the audit committee to meet with the Chief Audit Executive (CAE), or equivalent, and the independent external auditor in executive session at every meeting; but the director of financial reporting might be in executive session with the audit committee only at the meeting that occurs just before year-end results are released.

Put them on the agenda. It is a good practice to include the executive session(s) on the audit committee meeting agenda to avoid awkwardness when people are asked to leave the meeting and to make it clear that executive sessions are part of the ordinary course of committee business.

Document. While minutes are usually not recorded, it is important to document when an executive session took place and who was included in the discussion.

Approach them with a holistic perspective. When asking questions and considering responses in executive sessions, audit committee members need to consider the history of the entity, the industry in which it operates, the current economic climate, the competitive environment, and other factors.

Be available outside of executive sessions. Audit committee members have a responsibility to be accessible, even outside of meetings, to members of management and internal and external audit teams whenever a need for communication arises.

What questions should be asked in executive sessions?

The "Additional Questions to Consider" tool that accompanies this article highlights the breadth of the questions that audit committees could ask during executive sessions. It is intended for use as a starting point, with the understanding that the audit committee has the necessary expertise to evaluate answers, develop appropriate follow-up questions and, when necessary, take follow-up action. The tool contains a variety of questions for all the different parties audit committee members may choose to meet with in executive sessions, and it is filterable by meeting attendee and by topic for optimal utility.

The questions in the accompanying tool can be used to assist audit committees in gathering information regarding both known and unknown issues. They are not, however, intended to be a comprehensive checklist. It will not be unusual to ask similar questions of key executives, the independent external auditor, or the internal auditor, because comparing their respective responses could be a good source of insight.

It is important to note that not every organization will have all eight of the positions, nor will every organization have different individuals in each position listed in the accompanying tool. That said, the audit committee must be aware of individuals that fulfill dual roles or work together to share a role and adjust the questions accordingly. For example, in a small organization, the CFO and controller might share the duties of the director of financial reporting. The audit committee would explore how a function or role is accomplished and compose questions appropriately. The audit committee also needs to consider other roles in the entity beyond those listed in the tool in case others should be asked to meet in executive session.

Download the Sample questions to ask during executive sessions (excel)

File name: sample-questions-to-ask-during-exec-sessions.xlsx

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