Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

In a published document, the PCAOB noted its new strategic plan anticipated enhanced external engagement and more proactive communication with its stakeholders, including audit committees, to inform them about its core activities—including its inspections—and to maintain an ongoing dialogue with them.

The PCAOB noted that during 2019 it will provide an opportunity for audit committee chairs of certain companies whose audits are subject to inspection to engage in a dialogue with the inspections staff. The purpose of the audit committee dialogue is to provide further insight into the PCAOB process and obtain audit committee views. The PCAOB expects to publish additional updates to audit committees regarding its inspections to provide observations from these interviews and its inspection findings.

I guess that means if your audit is selected for inspection the PCAOB may contact you.  It may be advisable to set up a protocol for responding to any such contact such as who should be informed and who will participate in the “dialogue” with the inspections staff and any necessary preparation for the dialogue.

Following that introduction, the PCAOB summarized its previously announced 2019 inspection priorities.  The PCAOB then noted that in addition to required communications from their auditors, audit committees may—at their discretion—choose to further engage with their auditors on current issues of inspection focus as they work to positively affect audit quality in those areas. The PCAOB provided the following sample questions that are designed to provide audit committees ideas of the types of questions they may consider asking their auditors, if relevant, throughout the year.

  • Auditor Response to Identified Risks
    • How have the current economic factors influenced the auditor’s risk assessment for the current year’s audit?
    • How has the auditor considered the relevant economic factors that could affect the company’s ability to continue as a going concern?
    • How has the auditor assessed potential risks of material misstatement related to the company’s technology systems, including cyber security, and how has it addressed those potential risks?
  • Changes in Auditor’s Report
    • What are the most substantive issues or learnings identified pursuant to the firm’s pilot testing and dry runs related to communicating CAMs in the auditor’s report?
    • What items, if any, were considered “close calls” but ultimately not identified as a CAM by the auditor? Why were these items not determined to be CAMs?
  • Implementation of New Accounting Standards
    • What are the auditor’s observations regarding the company’s implementation of the new revenue recognition standard?
    • What is the auditor’s view of the company’s readiness to adopt new accounting standards pertaining to lease accounting and valuation of financial instruments, including credit losses (if relevant)?
  • Quality Controls
    • How does the firm’s quality control system promote audit quality?
    • What are recent actions taken by the firm to strengthen its quality control system?
    • Did the audit include the use of software audit tools? If so, how were these tools used and how did the use of these tools affect the risk assessment and the quality of audit evidence?
  • Auditor Independence
    • How does the firm monitor compliance with the independence requirements of the PCAOB and SEC, including compliancewith obtaining pre-approvals for non-audit services?
    • How can the audit committee and management assist the auditor in complying with independence requirements?
  • PCAOB Inspection Results and Corrective Actions
    • If the firm has been inspected by the PCAOB, were there inspection findings? If so, what were those findings and what corrective actions has the firm taken?
    • How has the firm’s inspection findings changed over time?
  • Possible Indicators to Audit Quality
    • Has the firm developed a definition of audit quality? If so, how is audit quality defined?
    • Based on the firm’s definition, what are the key drivers of audit quality for the firm overall and for this audit engagement specifically?
    • How does the firm identify, set targets for, and monitor those key drivers generally, and specifically with respect to this audit engagement?