PCAOB on Communications with Audit Committees

Question 1

Auditors objectives:

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

Establishing an Understanding of the Terms of the Audit

Answer 2

1) The auditor should establish an understanding of the terms of the engagement with the audit committee, including the following matters: (a) the objective of the audit; (b) the auditor’s responsibilities; and (c) management’s responsibilities.
2) The auditor should provide an engagement letter to the audit committee annually.

Question 3

Communicate Results of the audit:

Answer 3

1) Accounting Policies and Practices, Estimates, and Significant Unusual Transactions
2) Auditor’s Evaluation of the Quality of Financial Reporting
3) Management Consultation with Other Accountants
4) Going Concern Issues
5) Uncorrected and Corrected Misstatements
6) Disagreement with management
7) Difficulties Encountered in Performing the Audit

Question 4

Form and Documentation of Communications

Answer 4

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

Question 5

Timing

Answer 5

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.

Question 6

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 6

1) 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.
2) At the beginning of the audit, the auditor would discuss with the audit committee the terms of the engagement, including the objectives of the audit and the parties’ respective responsibilities.
3) At the beginning of the audit, the auditor would discuss with the audit committee an overview of the audit strategy and timing of the audit, including any significant risks identified by the auditor.

Question 7

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

Answer 7

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.