In an effort to help protect the interest of public company investors, the Public Company Accounting Oversight Board (PCAOB) adopted Auditing Standard No. 16 with the intention of improving communications between auditors and audit committees. In adopting this new standard, the PCAOB recognized that audit committees play an important role in overseeing the integrity of the company’s accounting and financial reporting process. Accordingly, effective communications between the auditor and audit committee will help the audit committee in performing its oversight role.
In summary, this new standard will enhance the relevance, timeliness and quality of communications between the auditor and the audit committee. At a minimum, auditors of public companies will be required to communicate the audit strategy and audit results to the audit committee in a timely manner, which is defined by the standard as prior to the issuance of the auditors’ report. Communications that are specialized and tailored to each specific client are expected and should benefit both the auditor and the audit committee. These communications can take many forms, from formal presentations to robust conversations.
Some of the additional topics that will now be included as a result of this standard are:
• An overview of the audit strategy, including timing, risks and audit plan changes
• Information regarding the use of specialists, internal auditors or other firms
• A discussion on principal auditor requirements when other auditors will be involved
• Matters regarding the application of newly implemented accounting standards
• Difficult or contentious matters
• An evaluation of going concern considerations
• Departures from the standard audit report
• Other matters arising from the audit
While this standard only impacts auditors of public companies, it would not be surprising to see the American Institute of Certified Public Accountants (AICPA) amend its current guidance to make similar changes for auditors of non-public companies.
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