More than nine of 10 audits inspected in 2014 showed no failure to comply with the PCAOB’s recently issued standard on communications with audit committees, according to a report released Tuesday.
In 93% of the audits inspected in 2014 for which the standard applied, no failures to comply with the requirement were identified, according to the PCAOB report. Preliminary results from 2015 inspections show similar results.
The PCAOB’s standard on audit committee communication took effect for audits of fiscal years beginning on or after Dec. 15, 2012. The standard requires the auditor to communicate with the company’s audit committee regarding certain matters related to the conduct of the audit and to obtain certain relevant information from the audit committee.
In addition, the standard requires the auditor to establish an understanding of the terms of the audit engagement with the audit committee and to record that understanding in an engagement letter.
Inspections staff found deficiencies in complying with the new standard in 7% of the relevant audits, according to the PCAOB. Although those deficiencies did not by themselves result in an insufficiently supported audit opinion, they indicated possible defects in the firms’ systems of quality control.
Audit committee chairs generally told PCAOB inspections staffers that effective two-way communication with their auditors had occurred. Some audit committee chairs said the robustness and formality of communications with their auditors improved after the effective date of the standard. The improvements included more in-depth discussions with the auditors about audit progress, significant risk areas, and audit findings.
Other audit committee chairs said their auditors had been communicating the matters required by the standard before the standard took effect.
“The communication between an audit firm and the audit committee is fundamental to a reliable and high-quality audit,” PCAOB Chairman James Doty said in a news release. “I encourage auditors and audit committee members to read this report carefully.”
—Ken Tysiac (firstname.lastname@example.org) is a JofA editorial director.