On August 15, 2012, the Public Company Accounting Oversight Board (PCAOB) adopted Auditing Standard No. 16, Communications with Audit Committees. This standard sets forth matters that the auditor should discuss with audit committees prior to the issuance of the auditor’s report. Standard No. 16 supersedes PCAOB’s interim standards AU sec. 380, Communication with Audit Committees, and AU sec. 310, Appointment of the Independent Auditor. The PCAOB expects Standard No. 16, which is subject to the SEC approval, to be effective for audits of fiscal years beginning on or after December 15, 2012. In addition, the PCAOB will request, subject to the SEC’s separate determination, that this standard apply to the audits of emerging growth companies established under the JOBS Act.
Standard No. 16 enhances certain existing auditor communication requirements and adds new communication requirements that provide the audit committee with additional information about the audit, including the following:
- an overview of the overall audit strategy, including timing of the audit, significant risks the auditor identified, and significant changes to the planned audit strategy or identified risks;
- information about the nature and extent of specialized skill or knowledge needed in the audit, the extent of the planned use of internal auditors, company personnel or other third parties, and other independent public accounting firms, or other persons not employed by the auditor that are involved in the audit;
- the basis for the auditor’s determination that he or she can serve as principal auditor, if significant parts of the audit will be performed by other auditors;
- situations in which the auditor identified a concern regarding management’s anticipated application of accounting pronouncements that have been issued but are not yet effective and might have a significant effect on future financial reporting;
- difficult or contentious matters for which the auditor consulted outside the engagement team;
- the auditor’s evaluation of going concern;
- departure from the auditor’s standard report; and
- other matters arising from the audit that are significant to the oversight of the company’s financial reporting process, including complaints or concerns regarding accounting or auditing matters that have come to the auditor’s attention during the audit.