PCAOB: Auditing Standards - Communications with Audit Committees

Question 1

Objective

Answer 1

(1) communicate to the audit committee the auditor’s responsibilities regarding the audit and establish an understanding of the terms of the audit engagement with the audit committee;
(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 the audit that are significant.

Question 2

Communicating the Audit Strategy

Answer 2

1. The auditor should communicate an overview of the audit strategy including (timing of the audit)
2. discuss any significant risks identified during the auditor’s risk assessment.
3. The auditor should communicate the need for specialized skills or knowledge and plans to use the work of the entity’s internal auditors or others (including other CPA firms) in the integrated audit.

Question 3

Results of the Audit

Answer 3

The auditor should communicate the following matters:

(1) significant accounting policies and practices;
(2) critical accounting policies and practices (and the reasons they are considered critical);
(3) critical accounting estimates (including a description of management’s processes, significant assumptions, and significant changes to those processes or assumptions); and
(4) significant unusual transactions (matters that are outside the normal course of business). If management communicates any of those matters, the auditor is not required to communicate them again at the same level of detail.

Question 4

Auditor’s Evaluation of the Quality of Financial Reporting

Answer 4

The auditor should communicate the following matters:

1. Qualitative aspects of significant accounting policies and practices (including any indications of management bias);
2. Assessment of critical accounting policies and practices;
3. Conclusions regarding critical accounting estimates;
4. Significant unusual transactions (and their business rationale);
5. The conformity of the financial statement presentation with applicable financial reporting framework;
6. Any new accounting pronouncements affecting financial reporting; and
7. Alternative accounting treatments discussed with management.

Question 5

Other information in documents containing audited financial statements

Answer 5

The auditor should communicate the auditor’s responsibilities for other information presented in documents containing the audited financial statements.

Question 6

Difficult or contentious matters

Answer 6

The auditor should communicate any difficult or contentious matters for which the auditor consulted outside the engagement team.

Question 7

Management consultation with other accountants

Answer 7

The auditor should communicate views about any known instances where management consulted with other accountants about significant accounting or auditing matters.

Question 8

Going concern issues

Answer 8

The auditor should communicate about the following going concern matters: (1) The conditions or events causing the auditor to have substantial doubt about the company’s ability to continue for a going concern for a reasonable period of time; (2) the basis for the auditor’s conclusion, if the auditor concludes that such substantial doubt is alleviated by management’s plans; and (3) if the auditor concludes that substantial doubt remains after considering management’s plans, the effect on the financial statements and the auditor’s report.

Question 9

Uncorrected and corrected misstatements –

Answer 9

1. Uncorrected misstatements – 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
2. Corrected misstatements – The auditor should communicate those corrected misstatements (other than those that are clearly trivial) that were detected by the auditor, and discuss the implications of those matters relative to internal control over financial reporting.

Question 10

Material written communications

Answer 10

The auditor should communicate other material written communications between the auditor and management.

Question 11

Departure from the auditor’s standard report

Answer 11

When the auditor expects to modify the opinion or include explanatory language to the audit report (or an explanatory paragraph), the auditor should communicate the reasons for that.

Question 12

Disagreements with management

Answer 12

The auditor should communicate any disagreements with management over significant matters, whether or not satisfactorily resolved.

Question 13

Difficulties encountered in performing the audit

Answer 13

The auditor should communicate any significant difficulties encountered, such as: (1) significant delays or the unavailability of personnel; (2) unreasonable time pressures to complete the audit; (3) unreasonable management restrictions; and (4) unexpected difficulties in obtaining sufficient appropriate audit evidence.

Question 14

Other matters

Answer 14

The auditor should communicate any other matters arising out of the audit that are significant to overseeing the company’s financial reporting.

Question 15

Form & Timing of Communication

Answer 15

FORM: The auditor’s communications may be oral or in writing, unless otherwise specified.

TIMING: The auditor should communicate all of these required matters to the audit committee on a timely basis and prior to the issuance of the auditor’s report.