PCAOB Highlights Key Issues for Audit Committees in New Communication Toolby
During a speech at Baruch College in New York City last week, Public Company Accounting Oversight Board (PCAOB) Chairman James Doty said the agency wants to broaden its outreach with audit committee members and take that outreach “to a new level.”
“We have developed a communication tool to provide audit committees insight from our work,” Doty said at the 14th Annual Financial Reporting Conference at Baruch on May 7. “This is not a regulatory push. We don’t oversee the audit committee’s work and are cautious not to add to their burden. Rather, we are responding to a demand pull.”
The communication tool that Doty spoke of was issued by the PCAOB later that day. The Audit Committee Dialogue is the first in a series of bulletins intended to provide insight that may be helpful to audit committee members in their oversight of their auditors.
The first bulletin highlights key areas of recurring concern in PCAOB inspections of large audit firms, as well as certain emerging risks to the audit. It also provides targeted questions that audit committee members may ask their auditors on each topic.
“To help audit committees champion the audit, the PCAOB aims to better equip them with information about the audit, our inspection reports, and the auditor’s strengths and weaknesses,” Doty said.
The Audit Committee Dialogue outlines four audit areas in which significant deficiencies have been found in recent years at the member firms of six large global networks, and explains how audit committees may use this information.
- Auditing internal control over financial reporting.
- Assessing and responding to risks of material misstatement.
- Auditing accounting estimates, including fair value measurements.
- In cross-border audits, deficient “referred” work – work performed by other audit firms and used by the signing audit firm.
Doty said the audit report “can’t be informative unless it is relevant,” and that the agency is always “thinking about how well the audit report is serving the investing public.”
“Management may not like being audited, but they’ll respect the audit if the market does,” he continued. “On the other hand, if the market doesn’t find the auditor’s opinion relevant and reliable, it won’t ascribe value to the opinion. And in that case, neither will the company that has to pay for it.”
The bulletin also identifies four potential emerging risks that are informing the board’s inspection planning this year. Those risks are:
- Increase in mergers and acquisitions.
- Falling oil prices.
- Undistributed foreign earnings.
- Maintaining audit quality when growing other business lines.