PCAOB Issues Report Describing Inspection Observations Related to Audit Firms’ Communications with Audit Committees
The Public Company Accounting Oversight Board today released a report on inspection observations of registered audit firms' initial implementation of and compliance with the PCAOB auditing standard on Communications with Audit Committees, describing that in 93 percent of the audits inspected in 2014 for which the standard applied, no failures to comply with the requirements were identified. Preliminary results from 2015 inspections show similar results.
According to the report, PCAOB inspectors found that most firms inspected in 2014 had incorporated the requirements of the standard (AS No. 16/AS 1301) into their audit methodologies, introduced relevant practice aids, or provided training to their partners and staff.
"The communication between an audit firm and the audit committee is fundamental to a reliable and high quality audit. I encourage auditors and audit committee members to read this report carefully," said PCAOB Chairman James R. Doty.
Inspections staff identified deficiencies in complying with the new standard in 7 percent of the relevant audits inspected. Those deficiencies did not by themselves result in an insufficiently supported audit opinion, but nevertheless constituted departures from the requirements of the standard and indicated a potential defect in firms' systems of quality control. Inspections staff also identified deficiencies related to other PCAOB rules and standards requiring communications with audit committees, such as communications concerning independence.
During interviews with inspections staff, audit committee chairs generally indicated that effective two-way communication with their auditors had occurred. Some audit committee chairs noted that after the effective date of the standard, there had been improvements in the robustness and formality of communications with their auditors, including more in-depth discussions with the auditor about audit progress, significant risk areas, and audit findings.
Other audit committee chairs noted that their auditors had been communicating the matters required under the standard even before the standard came into effect and, accordingly, they had not observed a significant change in their communications with their auditors in 2013.
The report, Inspection Observations Related to PCAOB Rules and Auditing Standards on Communications with Audit Committees, covers the PCAOB's 2014 and preliminary 2015 inspection results. The standard became effective for audits of fiscal years beginning on or after December 15, 2012.