On December 20, 2011, the PCAOB re-proposed for comment an auditing standard on Communications with Audit Committees that seeks to improve communications between auditors and audit committees. The proposed auditing standard would supersede the PCAOB's interim standards AU sec. 380 and AU sec. 310, Appointment of the Independent Auditor, and related amendments to PCAOB standards. The proposed auditing standard and other amendments would be applicable to all audits conducted in accordance with PCAOB standards.
According to PCAOB Chairman James R. Doty, "the new proposed standard is designed to benefit investors by enhancing the relevance and quality of the communications between the auditor and the audit committee." Doty hopes that the proposed standard will foster meaningful, effective interchange between auditors and audit committees rather than communications based merely on compliance checklists.
Some notable aspects of the proposed standard include:
- requiring the auditor to communicate to the audit committee an overview of the overall audit strategy, including the significant risks the auditor identified, and to update the audit committee regarding significant changes to the planned audit strategy or identified risks
- enhancing the auditor's inquiries of the audit committee regarding matters relevant to the audit, including, but not limited to, knowledge of violations or possible violations of laws or regulations and complaints or concerns raised regarding financial reporting matters
- enhancing the communication with the audit committee regarding the auditor's evaluation of the quality of the company's financial reporting by aligning the communication requirements with the risk assessment standards and incorporating certain SEC communication requirements
- requiring the auditor to communicate significant unusual transactions and the auditor's understanding of the business rationale for such transactions
- enhancing auditor communication with the audit committee regarding the company's accounting policies, practices, and estimates by aligning the communication requirements with auditor's performance requirements
The proposed standard includes several changes in response to comments received on the original proposal introduced on March 29, 2010. One of the centerpieces of the original proposal ─ the requirement that auditors evaluate the two-way communications process between the auditor and the audit committee ─ has been deleted. The current proposed standard also includes several important components that were not in the original proposal, such as a requirement that the auditor communicate with the audit committee regarding significant transactions not in the ordinary course of business.
Comments on the proposed standard should be received by the PCAOB no later than February 29, 2012.