Communications with Audit CommitteesSupersedes AU sec. 310, Appointment of the Independent Auditor; AU sec. 380, Communication With Audit Committees; and AU sec. 9380, Communication With Audit Committees Auditing Interpretations of Section 380Effective Date: For audits of fiscal years beginning on or after Dec. 15, 2012Final Rule: PCAOB Release No. 2012-004SUMMARY TABLE OF CONTENTS
Introduction1. 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
2. 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. Objectives3. The objectives of the auditor are to:
Appointment and RetentionSignificant Issues Discussed with Management in Connection with the Auditor's Appointment or Retention4. 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 Audit5. 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:
6. 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. 7. 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 Audit8. 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 Risks9. 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/
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 Transactions12. The auditor should communicate to the audit committee the following matters:
Auditor's Evaluation of the Quality of the Company's Financial Reporting13. The auditor should communicate to the audit committee the following matters:
[The following subparagraph d. is effective for audits of fiscal years beginning on or after December 15, 2014. See PCAOB Release No. 2014-002. For audits of fiscal years beginning before December 15, 2014, click here.] Other Information in Documents Containing Audited Financial Statements14. 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 Consulted15. 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 Accountants16. 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 Concern17. 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 Misstatements18. 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 Communications20. The auditor should communicate to the audit committee other material written communications between the auditor and management.38/ Departure from the Auditor's Standard Report21. The auditor should communicate to the audit committee the following matters related to the auditor's report:
Disagreements with Management22. 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 Audit23. 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:
Other Matters24. 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 Communications25. The auditor should communicate to the audit committee the matters in this standard, either orally or in writing,41/ 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/
Timing26. 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.
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.
Which of the following matters is an auditor required to communicate to an entity's audit committee?Accounting Policies and Practices, Estimates, and Significant Unusual Transactions. 12. The auditor should communicate to the audit committee the following matters: Significant accounting policies and practices.
Which of the following statements is correct about an auditors required communication?Which of the following statements is correct concerning an auditor's required communication with those charged with governance? This communication should include disagreements with management about significant audit adjustments, whether or not satisfactorily resolved.
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.
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