Aug 7th 2012
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."
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.
- James Doty: New PCAOB Chairman Works to Increase Audit Enforcement Initiatives
- PCAOB Chairman: Audit Firm Changes May Become Mandatory