At the 2011 annual meeting of the Association of Audit Committee Members,14 Daniel Goelzer, Esquire, a founding member of the Public Company Accounting Oversight Board (PCAOB), a former acting PCAOB chair and currently a PCAOB board member, spoke on: “What Audit Committees Should Know about the Work of the PCAOB.”15 In the speech, Mr. Goelzer discussed three recent PCAOB initiatives designed to strengthen the audit. The initiatives include:
- mandatory rotation of audit fi rms;
increasing the information provided in auditor’s report to include:
- an auditor’s discussion and analysis;
- emphasis paragraphs;
- auditor assurance on information outside the fi nancial statements, such as MD&A, earnings announcements, or non-GAAP information in company releases; and/or
- clarifi cation of language used in a standard auditor’s report; and
- increasing transparency by having the engage ment partner sign the report in her or his own name and having the principal audit fi rm disclose the names of all other fi rms that participated in the audit.
Mr. Goelzer noted that the proposals are controversial and suggested that audit committee members review the proposals and provide comments to the PCAOB.
Mr. Goelzer also suggested that, with respect to the periodic inspection of audit fi rms by the PCAOB, the audit committee should ask their auditors the following questions:
- Is the PCAOB reviewing our engagement as part of its inspection of your fi rm?
- Did the PCAOB identify issues with our audit in your inspection report?
- If the PCAOB did fi nd a problem with our audit, what was your fi rm’s response?
- Did the PCAOB identify any issues with your fi rm’s quality controls that could affect our audit?
Mr. Goelzer emphasized that PCAOB inspections can assist audit committees in their oversight and evaluation of the auditor—provided that they ask the right questions. As a best practice, we recommend that audit committees insert a provision in the engagement letter requiring the auditor to make these disclosures to the audit committee.