PCAOB Approves New Standard on Communication

By Anne Rosivach

The Public Company Accounting Oversight Board (PCAOB) voted unanimously on August 15, 2012, to approve a new standard that will enhance the quality of communications between the auditor and the audit committee. Auditing Standard No. 16, Communications with Audit Committees, will now be submitted to the Securities and Exchange Commission (SEC) for approval. The new standard and related amendments will supersede AU Section 380 and will apply to communications with audit committees of public companies and with issuers, brokers, and dealers. 
 
The Board initially proposed the standard on March 29, 2010, and re-proposed the standard on December 20, 2011. Auditing Standard No. 16 will be effective for audits of fiscal periods after December 15, 2012.
 
"This standard has benefited from an enormous amount of public outreach about how to enhance investor protection by providing for relevant and timely communication between the auditor and an issuer's audit committee, said PCAOB Chairman James R. Doty, in his statement.
 
Auditing Standard No. 16 does not require new audit procedures. This standard focuses on communicating the results of audit procedures that the auditor is already required to perform.
 
"I believe the standard moves the auditor's communication with the audit committee away from compliance checklists and decisively in the direction of meaningful, effective interchange," Doty said.
 
In their prepared statements, board members discussed the requirements of the new standard that will lead to improved audit quality. Three board members, including Steven Harris, found of great significance the requirements that:
  • Auditors communicate significant unusual transactions to the audit committee on a timely basis.
  • Auditors communicate to the audit committee their opinion on the company's ability to continue as a going concern.
  • Auditors inform the audit committee of the auditor's plans to use other firms to perform required audit procedures. 
 
Board member Jay Hanson pointed out that "the timetable to implement Auditing Standard No. 16 is short. After we issue the standard, an additional process and approval is required by the SEC. I encourage all firms to move quickly to revise their tools, sample letters, and other guidance to reflect the new requirements. Audit teams will need training on the new requirements."
 
PCAOB Deputy Chief Auditor Jennifer Rand commented on characteristics of the standard that should lead to efficiency and minimal cost to implement. The new standard is scalable:
  • It can be adapted to the size of a company and can be implemented with minimal costs.
  • It retains preexisting auditor communication requirements and lists other rules that apply to communication with audit committees.
  • It is flexible in that the communications may be made either orally or in writing.
 
Jessica Watts, associate chief auditor at the PCAOB, addressed some of the changes from existing language. Previously, auditors were not required to communicate with the audit committee before the issuance of the financial report. Under the new standard, communication with audit committees must now be timely. Letters regarding the terms of the engagement must now be addressed to the audit committee.  Previously, these letters were addressed to the client.
 
PCAOB Chief Auditor and Director of Professional Standards Martin F. Baumann said that the PCAOB does not have authority over the audit committee, whose role is oversight. The intent of the new standard is to improve the quality of the audit and enhance audit committee oversight.
 
When asked whether oral communications should be documented in the work papers, Rand said that the new standard references the requirement of Auditing Standard No. 3, that oral communications be recorded in the work papers.
 
Related article:
 

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
Credit Suisse says pension assets at risk unless court delays sentencingJohn Letzing of the Wall Street Journal reported on Wednesday that Credit Suisse Group AG says its management of billions of dollars in assets for...
The prospect of International Financial Reporting Standards (IFRS) being fully adopted in the United States in the near future are growing less likely, as the Financial Accounting Standards Board (FASB) and the International...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.