PCAOB offers feedback from audit committee heads
The Public Company Accounting Oversight Board has released a document providing information from its conversations with nearly 400 chairs of audit committees at companies about their views on audit quality, their relationship and communication with auditing firms, new auditing and accounting standards, technology, and the PCAOB inspection process.
The document, Conversations with Audit Committee Chairs: What We Heard & FAQs, released last week by the PCAOB, also provides an overview of the inspection process and staff responses to frequently asked questions during the conversations.
The staff also asked the audit committee leaders about what works well to enhance audit quality. Among their responses was asking the auditor if the audit firm has an annual audit quality or transparency report, or another document that outlines how the firm measures audit quality. Another important factor for audit committees is understanding and discussing the processes that the auditor has in place to address the previous year’s PCAOB inspections report.
In terms of their relationship and communication with the auditor, they recommended holding a pre-call or meeting with the audit committee chair and lead engagement partner prior to an audit committee meeting to review and refine the meeting agenda and materials. Another suggestion was conducting an assessment — at least anually — of the engagement team and audit, including discussions around what went well and what could be improved.
“Most audit committee chairs were satisfied with their relationship with their auditors, the service from the audit firm and engagement teams, and the team’s skepticism and judgment,” said the report. “They were also generally satisfied with the information they received regarding auditor independence. Audit committee chairs described their communication with their auditors as very good and thorough, with many noting that they communicated more frequently around scheduled quarterly meetings, particularly with the lead engagement partner.”
The audit committee chairs interviewed for the report said they spent a significant amount of time discussing new accounting and auditing standards with their auditors and most of them felt their auditors were proactive in addressing the new requirements. However, some of them were concerned about the effects that the overlapping timing of implementation of several new accounting and auditing standards could have on both their internal and external auditors’ resources and time.
In terms of technology, some of the audit committee chairs interviewed by the PCAOB indicated they had a basic familiarity with various auditing software tools and technologies. But while they generally supported automating pieces of the audit when it’s appropriate, several of them cautioned that the return on investment should be carefully considered. Others said it remained to be seen whether technology would improve or detract from audit quality. Some of the audit committee chairs, particularly at large companies, said they’re beginning to implement machine learning in some of their basic internal audit work, and some of them were aware their auditing firm was using data analytics.