The Public Company Accounting Oversight Board released a report Tuesday indicating that the vast majority of audit firms were doing a good job of complying with a recent standard on communications with their client’s audit committees.
The report focused on the PCAOB’s inspection observations of registered audit firms' initial implementation of and compliance with the PCAOB auditing standard on Communications with Audit Committees. The PCAOB found that in 93 percent of the audits inspected in 2014 for which the standard applied, no failures to comply with the requirements were identified. Preliminary results from inspections last year indicate similar results.
PCAOB inspectors found that most of the firms they inspected in 2014 had incorporated the requirements of the standard (AS No. 16/AS 1301) into their audit methodologies, introduced relevant practice aids, or provided training to their partners and staff.
"The communication between an audit firm and the audit committee is fundamental to a reliable and high-quality audit,” said PCAOB Chairman James R. Doty in a statement. “I encourage auditors and audit committee members to read this report carefully."
PCAOB inspections staff identified deficiencies in complying with the new standard in only 7 percent of the relevant audits they inspected. Those deficiencies did not by themselves lead to an insufficiently supported audit opinion, but nonetheless constituted departures from the requirements of the standard and indicated a potential defect in firms’ systems of quality control. The inspections staff also identified deficiencies related to other PCAOB rules and standards requiring communications with audit committees, such as communications concerning independence.
During interviews with inspections staff, audit committee chairs generally indicated that effective two-way communication with their auditors had occurred. Some of the audit committee chairs who were interviewed for the report noted that after the effective date of the standard, they had seen improvements in the robustness and formality of communications with their auditors, including more in-depth discussions with the auditor about audit progress, significant risk areas, and audit findings.
Other audit committee chairs noted that their auditors had been communicating the matters required under the standard even before the standard came into effect and, accordingly, they had not observed a significant change in their communications with their auditors in 2013.
The report, Inspection Observations Related to PCAOB Rules and Auditing Standards on Communications with Audit Committees, covers the PCAOB's 2014 and preliminary 2015 inspection results. The standard became effective for audits of fiscal years beginning on or after Dec. 15, 2012.
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