Summary Table of Contents
Introduction.01 This standard requires the auditor to communicate with the company's audit committee1 regarding certain matters related to the conduct of an audit2 and to obtain certain information from the audit committee relevant to the audit. This standard also requires the auditor to establish an understanding of the terms of the audit engagement with the audit committee and to record that understanding in an engagement letter. Show
.02 Other Public Company Accounting Oversight Board ("PCAOB") rules and standards identify additional matters to be communicated to a company's audit committee (see Appendix B). Various laws or regulations also require the auditor to communicate certain matters to the audit committee.3 The communication requirements of this standard do not modify or replace communications to the audit committee required by such other PCAOB rules and standards, and other laws or regulations. Nothing in this standard precludes the auditor from communicating other matters to the audit committee. Objectives.03 The objectives of the auditor are to:
Note: "Communicate to," as used in this standard, is meant to encourage effective two-way communication between the auditor and the audit committee throughout the audit to assist in understanding matters relevant to the audit. Appointment and RetentionSignificant Issues Discussed with Management in Connection with the Auditor's Appointment or Retention.04 The auditor should discuss with the audit committee any significant issues that the auditor discussed with management in connection with the appointment or retention of the auditor, including significant discussions regarding the application of accounting principles and auditing standards. Establish an Understanding of the Terms of the Audit.05 The auditor should establish an understanding of the terms of the audit engagement with the audit committee. This understanding includes communicating to the audit committee the following:
.06 The auditor should record the understanding of the terms of the audit engagement in an engagement letter and provide the engagement letter to the audit committee annually. The auditor should have the engagement letter executed by the appropriate party or parties on behalf of the company.4 If the appropriate party or parties are other than the audit committee, or its chair on behalf of the audit committee, the auditor should determine that the audit committee has acknowledged and agreed to the terms of the engagement. Note: Appendix C describes matters that the auditor should include in the engagement letter about the terms of the audit engagement. .07 If the auditor cannot establish an understanding of the terms of the audit engagement with the audit committee, the auditor should decline to accept, continue, or perform the engagement. Obtaining Information and Communicating the Audit StrategyObtaining Information Relevant to the Audit.08 The auditor should inquire of the audit committee about whether it is aware of matters relevant to the audit,5 including, but not limited to, violations or possible violations of laws or regulations.6 Overall Audit Strategy, Timing of the Audit, and Significant Risks.09 The auditor should communicate to the audit committee an overview of the overall audit strategy, including the timing of the audit,7 and discuss with the audit committee the significant risks identified during the auditor's risk assessment procedures.8 Note: This overview is intended to provide information about the audit, but not specific details that would compromise the effectiveness of the audit procedures. .10 As part of communicating the overall audit strategy, the auditor should communicate the following matters to the audit committee, if applicable:
.11 The auditor should communicate to the audit committee significant changes to the planned audit strategy or the significant risks initially identified and the reasons for such changes.14 Results of the AuditAccounting Policies and Practices, Estimates, and Significant Unusual Transactions.12 The auditor should communicate to the audit committee the following matters:
Note: Critical accounting policies and practices, as defined in Appendix A, are a company's accounting policies and practices that are both most important to the portrayal of the company's financial condition and results, and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Critical accounting policies and practices are tailored to specific events in the current year, and the accounting policies and practices that are considered critical might change from year to year. Note: As part of its communications to the audit committee, management might communicate some or all of the matters in paragraph .12. If management communicates any of these matters, the auditor does not need to communicate them at the same level of detail as management, as long as the auditor (1) participated in management's discussion with the audit committee, (2) affirmatively confirmed to the audit committee that management has adequately communicated these matters, and (3) with respect to critical accounting policies and practices, identified for the audit committee those accounting policies and practices that the auditor considers critical. The auditor should communicate any omitted or inadequately described matters to the audit committee. Auditor's Evaluation of the Quality of the Company's Financial Reporting.13 The auditor should communicate to the audit committee the following matters:
Other Information in Documents Containing Audited Financial Statements.14 When other information is presented in documents containing audited financial statements, the auditor should communicate to the audit committee the auditor's responsibility under PCAOB rules and standards for such information, any related procedures performed, and the results of such procedures.27 Difficult or Contentious Matters for which the Auditor Consulted.15 The auditor should communicate to the audit committee matters that are difficult or contentious for which the auditor consulted outside the engagement team and that the auditor reasonably determined are relevant to the audit committee's oversight of the financial reporting process. Management Consultation with Other Accountants.16 When the auditor is aware that management consulted with other accountants about significant auditing or accounting matters and the auditor has identified a concern regarding such matters, the auditor should communicate to the audit committee his or her views about such matters that were the subject of such consultation. Going Concern.17 The auditor should communicate to the audit committee, when applicable, the following matters relating to the auditor's evaluation of the company's ability to continue as a going concern:28
Uncorrected and Corrected Misstatements.18 The auditor should provide the audit committee with the schedule of uncorrected misstatements related to accounts and disclosures34 that the auditor presented to management.35 The auditor should discuss with the audit committee, or determine that management has adequately discussed with the audit committee, the basis for the determination that the uncorrected misstatements were immaterial, including the qualitative factors36 considered. The auditor also should communicate that uncorrected misstatements or matters underlying those uncorrected misstatements could potentially cause future-period financial statements to be materially misstated, even if the auditor has concluded that the uncorrected misstatements are immaterial to the financial statements under audit. .19 The auditor should communicate to the audit committee those corrected misstatements, other than those that are clearly trivial,37 related to accounts and disclosures that might not have been detected except through the auditing procedures performed, and discuss with the audit committee the implications that such corrected misstatements might have on the company's financial reporting process. Material Written Communications.20 The auditor should communicate to the audit committee other material written communications between the auditor and management.38 The Auditor's Report.21 The auditor should provide to and discuss with the audit committee a draft of the auditor's report. Disagreements with Management.22 The auditor should communicate to the audit committee any disagreements with management about matters, whether or not satisfactorily resolved, that individually or in the aggregate could be significant to the company's financial statements or the auditor's report. Disagreements with management do not include differences of opinion based on incomplete facts or preliminary information that are later resolved by the auditor obtaining additional relevant facts or information prior to the issuance of the auditor's report. Difficulties Encountered in Performing the Audit.23 The auditor should communicate to the audit committee any significant difficulties encountered during the audit. Significant difficulties encountered during the audit include, but are not limited to:
Note: Difficulties encountered by the auditor during the audit could represent a scope limitation,39 which may result in the auditor modifying the auditor's opinion or withdrawing from the engagement. Other Matters.24 The auditor should communicate to the audit committee other matters arising from the audit that are significant to the oversight of the company's financial reporting process. This communication includes, among other matters, complaints or concerns regarding accounting or auditing matters that have come to the auditor's attention during the audit and the results of the auditor's procedures regarding such matters.40 Form and Documentation of Communications.25 The auditor should communicate to the audit committee the matters in this standard, either orally or in writing, unless otherwise specified in this standard. The auditor must document the communications in the work papers, whether such communications took place orally or in writing.42 Note: If, as part of its communications to the audit committee, management communicated some or all of the matters identified in paragraphs .12 or .18 and, as a result, the auditor did not communicate these matters at the same level of detail as management, the auditor must include a copy of or a summary of management's communications provided to the audit committee in the audit documentation. Timing.26 All audit committee communications required by this standard should be made in a timely manner and prior to the issuance of the auditor's report.43 The appropriate timing of a particular communication to the audit committee depends on factors such as the significance of the matters to be communicated and corrective or follow-up action needed, unless other timing requirements are specified by PCAOB rules or standards or the securities laws. Note: An auditor may communicate to only the audit committee chair if done in order to communicate matters in a timely manner during the audit. The auditor, however, should communicate such matters to the audit committee prior to the issuance of the auditor's report. Appendix A - Definitions.A1 For purposes of this standard, the terms listed below are defined as follows: .A2 Audit committee - A committee (or equivalent body) established by and among the board of directors of a company for the purpose of overseeing the accounting and financial reporting processes of the company and audits of the financial statements of the company; if no such committee exists with respect to the company, the entire board of directors of the company. For audits of nonissuers, if no such committee or board of directors (or equivalent body) exists with respect to the company, the person(s) who oversee the accounting and financial reporting processes of the company and audits of the financial statements of the company. .A3 Critical accounting estimate - An accounting estimate where (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. .A4 Critical accounting policies and practices - A company's accounting policies and practices that are both most important to the portrayal of the company's financial condition and results, and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Appendix B - Communications with Audit Committees Required by Other PCAOB Rules and StandardsThis appendix identifies other PCAOB rules and standards related to the audit that require communication of specific matters between the auditor and the audit committee.
Appendix C - Matters Included in the Audit Engagement Letter.C1 The auditor should include the following matters in the engagement letter.1 The auditor's description of these matters will vary depending on whether the auditor is engaged in a financial statement audit or in an audit of internal control over financial reporting that is integrated with an audit of financial statements ("integrated audit").
.C2 In connection with a review of interim financial information, to confirm and document the understanding, the auditor should either: (a) document in the audit engagement letter the nature and objectives of the engagement to review interim financial information and the responsibilities of management and the auditor or (b) issue a separate engagement letter that addresses such matters.3 Which of the following matters is an auditor required to communicate?Which of the following matters is an auditor required to communicate to those in the entity charged with governance? Discussion of disagreements with management about matters that significantly affect the entity's financial statements.
What are auditors required to communicate to the audit committee?09 The auditor should communicate to the audit committee an overview of the overall audit strategy, including the timing of the audit,7 and discuss with the audit committee the significant risks identified during the auditor's risk assessment procedures.
Which of the following items are auditors required to communicate to those charged with governance?05 The auditor must communicate with those charged with governance matters related to the financial statement audit that are, in the auditor's profes- sional judgment, significant and relevant to the responsibilities of those charged with governance in overseeing the financial reporting process. .
Which of the following statements is correct concerning an auditor's required communication with the audit committee?Which of the following statements is correct concerning an auditor's required communication with an entity's audit committee? This communication should include disagreements with management about significant audit adjustments, whether satisfactorily resolved or unresolved.
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