How Audit Committees Can Prepare for New Form AP Rules

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The Center for Audit Quality (CAQ) has published a new tool that guides audit committees on various aspects of a new Public Company Accounting Oversight Board (PCAOB) rule that requires external auditors to disclose the name of the engagement partner and other accounting firms participating in the audit.

PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants, mandates that independent registered public accounting firms file Form AP with the PCAOB for each audit report that’s issued. The engagement partner’s name will be included on the Form AP, which will be accessible in a searchable database on the PCAOB website.

The names of other accounting firms that participated in the audit also must be disclosed on the form. The rules for naming the engagement partner took effect for audit reports issued on or after Jan. 31, 2017, and the rules concerning the disclosure of other accounting firm participants take effect for audit reports issued on or after June 30, 2017.

“Form AP enhances transparency but does not provide all the context necessary when considering the quality of the financial statement audit,” the CAQ states in the new tool.

It does not, for example, include information about the contributions of other key people involved in the audit, the engagement partner’s experience, or the firm’s quality-control methods.

The following is a sample of some of the issues and advice the CAQ provides to audit committees in the new tool:

Experience. Audit committees should review an audit partner’s qualifications, industry, and other experience, and understand whether the audit partner is the lead engagement partner on other issuer audits.

“This information could help audit committee members fulfill their broader responsibilities to evaluate and oversee the external auditor,” the tool states.

Communications. Are other accounting firms’ disclosures on Form AP consistent with the audit committee’s understanding of audit participants based on planning discussions, company operations, legal names, or other considerations? Are the other disclosed accounting firms on the form members of the signing firm’s global network?

Quality control. How do the firm network’s leaders emphasize audit quality, ethics compliance, and sufficient competence of member and nonmember firms in the audit?

Oversight. How does the engagement partner supervise the work of other accounting firms and evaluate whether it has been performed according to professional standards? Do members of the group engagement team meet with members of the other accounting firm performing work on the audit? How frequently? Do they meet in person?

Investor relations. How will questions from investors and other stakeholders be addressed concerning new disclosures or inspection reports? How will investor relations advise the audit committee of questions from stakeholders?

Other employees. Besides investor relations, are the general counsel and corporate secretary aware of the new Form AP disclosures?

Social media. Will the new disclosures affect social media policies? How has the firm communicated its policy to engagement partners?

Related article:

PCAOB Adopts New Rules on Naming Audit Engagement Partner

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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Nov 7th 2017 14:23

Investors tend to be skeptical of the accuracy of financial statements. Good audits are the cornerstone of fair financial markets; the PCAOB is the main factor towing the weight and responsibility to help the integrity of financial markets

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Nov 13th 2017 04:56

Thank you so much for this article. Came in super handy for me as we had some accounting issues last year with our business -- Jackson Appliance Repair Company -- in Mississippi, and it fell right in that window you talked about from late January to late June. BIG thank you!

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