II. Planning Activities - PCAOB on Communications w/ Audit Committees

Question 1

What is the rule behind Uncorrected misstatements?

Answer 1

The auditor should provide the audit committee with a schedule of uncorrected misstatements that the auditor presented to management, and discuss with the audit committee the basis for the determination that the uncorrected misstatements were immaterial.

Note: Basically with the uncorrected misstatement you are still required to report those to the audit committee because they are the ones who DETERMINE or make the FINAL CALL on whether the uncorrected misstatement is material or immaterial = Trivial = Not important.

Question 2

***What is Critical Accounting Estimate?

What is Critical Accounting Policies and Practices?

Answer 2

Critical Accounting Estimate:

• nature of the estimate is material due to the levels of subjectivity and judgment necessary highly uncertain matters or the susceptibility of such matters to change and
• impact of the estimate on financial condition or operating performance is material.

Critical Accounting Policies:

• the company’s accounting policies and practices that are both most important to the portrayal of the company’s financial condition and results,
• 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.

Question 3

***What are some of the PCAOB matters to be communicated?

Answer 3

• Appointment & Retention
  
  • Issues discusses with mgmt
  • Est. an Understanding of the audit
• Obtaining Info & Communicating strategy
  
  • Inquire about relevant matters to the audit
  • Communicate audit strategy, significant risk

Question 4

***The PCAOB requires the auditor to communicate what kind of RESULTS of the audit?

Answer 4

1. Accounting policies, estimates, & unusual transactions
2. Evaluation of the quality of reporting
3. Auditor responsibility for other info
4. Difficult or contentious matters
5. Mgmt Consultation with other CPAs
6. Going Concern issues
7. Corrected/Uncorrected Misstatement
8. Material written communications
9. Departures from usual reports
10. Disagreement w/ mgmt
11. Difficult encountered
12. Other Significant Matter

Question 5

***Describe the Form and Timing of Communication that must be done by the auditor.

Answer 5

Form - Must be ORAL or WRITTEN. Unless otherwise specified

Timing - should be timely and prior to the issuance of the auditor’s report (report release date)

Question 6

Which of the following groups is considered a subgroup ordinarily charged with assisting the board of directors in fulfilling its oversight responsibilities?

Answer 6

Audit committee

note: An audit committee is a subset of the board of directors that is comprised of board members who are independent of the entity’s management.​

Question 7

The objectives of Auditing Standard No. 16, “Communications with Audit Committees,” What are those four objectives?

Answer 7

PCAOB AS Section 1301identifies the following four objectives:

(1) communicate to the audit committee the auditor’s responsibilities and establish an understanding of the terms of the engagement;

(2) obtain information from the audit committee relevant to the audit;

(3) communicate to the audit committee information about the strategy and timing of the audit; and

(4) provide the audit committee with timely observations about significant audit matters.

These objectives do not include enhancing communications between the audit committee and the entity’s internal audit function.

Question 8

Under PCAOB auditing standards, the auditor should communicate all of the following matters to an issuer’s audit committee at the beginning of the audit engagement

Answer 8

• At the beginning of the audit, the auditor would discuss with the audit committee any significant issues that the auditor discussed with management in connection with the auditor’s appointment/retention.
• The terms of the engagement, including the objectives of the audit and the parties’ respective responsibilities.​
• The terms of the engagement, including the objectives of the audit and the parties’ respective responsibilities.

Note: Although the auditor would discuss with the audit committee the qualitative aspects of the entity’s significant accounting policies (and any indications of management bias), those matters would be discussed at the end of the audit.

Question 9

The format and timing of the auditor’s required communication with an issuer’s audit committee is best characterized by the following:

Format of the communication

Timing of the communication

Answer 9

May be written or oral (unless otherwise specified)

Must be prior to issuing the auditor’s report

Note: Unless otherwise specified, the communication may be written or oral. (For example, an engagement letter obviously must be in writing.) The PCAOB requires that the communication be timely and prior to the issuance of the auditor’s report.

Question 10

Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer’s audit committee?

Answer 10

Prior to accepting the engagement, the firm should describe in writing all relationships that, as of the date of the communication, may reasonably be thought to bear on independence.