PCAOB Publishes 'Primer' for Audit Committees

By Christina Camara

Auditors often dismiss the importance of inspections by the Public Company Accounting Oversight Board (PCAOB), says its chairman, so the PCAOB is offering company audit committees some pointers about the inspection process in its twenty-six-page report -"Information for Audit Committees about the PCAOB Inspection Process." The report describes how PCAOB inspections of audit firms work and how to gather information from audit firms about those inspections.
 
On August 1, PCAOB Chairman, James Doty, told reporters that auditors explain away inspection findings as documentation problems, differences in professional judgments, or problems that have already been fixed. "The PCAOB would disagree with those characterizations, as report findings are serious matters," he said, according to Compliance Week.
 
The "primer" is designed to help audit committees learn more about the aspects of inspections that aren't public, in cases where the PCAOB is barred from discussing inspection findings. The board says firms can discuss the nonpublic inspection information, so audit committees should be skeptical if auditors say otherwise.
 
"We're aware that there's a range of practice with audit committees," Doty said. "That ranges from a high level of transparency and effectiveness to areas where we know it's not so effective."
 

PCAOB Suggestions

The PCAOB suggests that audit committees may want to ask their auditors:

  • Was the company's audit selected for PCAOB inspection?
  • Did the PCAOB identify deficiencies in other audits that involved auditing or accounting issues similar to issues presented in the company's audit?
  • What were the audit firm's responses to the PCAOB findings?
  • What topics are included in Part II findings?

 

Created by the Sarbanes-Oxley corporate reform legislation, the PCAOB has been inspecting audit firms since 2003. The legislation gave audit committees the authority to hire, fire, and oversee auditors, and it strengthened qualifications for serving on an audit committee.
 
"This is about empowering audit committees," Doty said. The inspection reports are the "only place where they (audit committees) can find independent evaluations of their auditors," he said.
 
One observer says CFOs should discuss issues with audit committees sooner. "They have an issue. They're not quite sure it's a problem so they don't want to tell you about it yet," Paula H. J. Cholmondeley, audit committee chair for Nationwide Mutual Funds, told CFO magazine. "That's one of the biggest areas of risk: when the audit committee doesn't find out about something until it's too late. The organization is too far into the issue." Regularly scheduled phone calls between the CFO and the audit committee would help, she said.
 
Related articles:
 

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Is it time to consider a value added tax?Forbes contributor Joseph Thorndike wrote yesterday that he believes the tax reform proposal by House Ways and Means Committee Chairman Dave Camp (R-MI) was dead on arrival. But he...
Read more from Larry Perry here and in the Today's World of Audits archive.The planning phase of an audit engagement of an entity using US GAAP or a special purpose framework will, with minor differences, include similar...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.