Audit Committee Oversight of Auditors: PCAOB Issues Guidance to Audit Committees on Audit Firm Inspection Process
Sullivan & Cromwell LLP - August 9, 2012
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The Public Company Accounting Oversight Board has issued a release to assist audit committees in:
- understanding the PCAOB’s inspection process of audit firms; and
- gathering useful information from their external audit firms about such inspections.
The PCAOB intends the release to better equip audit committees to engage in meaningful discussion with audit firms about the results of inspections. The release also highlights several areas that audit committees may wish to address in inspection-related communications with its auditors, including:
- whether the company’s audit was selected for PCAOB inspection;
- whether the PCAOB identified deficiencies in other audits that involved auditing or accounting issues similar to issues presented in the company’s audit;
- the audit firm’s responses to the PCAOB’s findings; and
- the audit firm’s remedial efforts in response to any PCAOB-identified quality control deficiencies.
While the PCAOB is statutorily prohibited from publishing certain portions of the inspection report, the release stresses that there is nothing preventing audit firms from discussing this information with, or providing copies to, audit committees. Audit committees should consider whether to take the PCAOB guidance into account in structuring their discussions with the external auditors, with a view toward putting the audit committee in a position to understand inspection findings and remediation efforts of auditors and to evaluate the potential implications for the company.