CAQ WEBCAST
Communications with Audit Committees:
Requirements and Leading Practices
October 24, 2012
The views expressed by the presenters do not necessarily represent the views, positions, or opinions of
the Center for Audit Quality (CAQ) or the presenters’ respective organizations. These materials, and the
oral presentation accompanying them, are for educational purposes only and do not constitute
accounting or legal advice or create an accountant-client or attorney-client relationship.
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Slide 2
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Slide 4
Today’s Program
 Robust, two-way communications between the auditor and audit committee (AC)
benefits the AC in overseeing the financial reporting process and external audit,
and the auditor in performing the audit.
 This Webcast is designed to provide both ACs and auditors with:
o An overview of required communications under Public Company Accounting
Oversight Board (PCAOB) Auditing Standard 16, Communications with Audit
Committees, including enhancements from the related interim standards AU
310 and 380.
o Insights and perspectives from panelists on leading practices that can be
employed by both auditors and ACs to promote robust and candid dialogue
on significant audit and financial statement matters as well as other
information relevant to the ACs oversight, for example PCAOB inspection
information and other quality control matters.
 This Webcast focuses on the requirements in AS 16; however we encourage
viewers to refer to Appendix 3 in the release to AS 16, which describes related
amendments to other PCAOB standards, including AU 722, Interim Financial
Information.
Slide 5
Panelists
Jay Hanson
Board Member
Public Company Accounting Oversight Board
Michele Hooper
President and CEO, The Directors’ Council
Audit Committee Chair, PPG Industries, Inc.
Governing Board Member, Center for Audit Quality
Joe Ucuzoglu
National Managing Partner, Regulatory and Public Policy
Deloitte LLP
Moderator
Cindy Fornelli
Executive Director
Center for Audit Quality
Slide 6
Overview of Recent Developments
 PCAOB Auditing Standard 16, Communications with Audit
Committees (AS 16) and Related Amendments to PCAOB Standards
Available at:
http://pcaobus.org/Rules/Rulemaking/Docket030/Release_2012-004.pdf
 PCAOB Release No. 2012-003, Information for Audit Committees
About the PCAOB Inspection Process
Available at:
http://pcaobus.org/Inspections/Documents/Inspection_Information_for_Audit_
Committees.pdf
 CAQ Practice Aid, Discussions with Audit Committees About
Inspection Findings and Quality Control Matters
Available at:
http://www.thecaq.org/resources/pdfs/AuditCommitteeCommunications.pdf
Slide 7
Overview of AS 16
8
Disclaimer for Jay Hanson
The views I express are mine and do
not necessarily reflect the views of the
PCAOB, other Board members, or
members of the Board’s staff.
9
Objectives

The objectives of the auditor are to:
o
o
o
o
Communicate to the AC the responsibilities of the auditor in relation to
the audit and establish an understanding of the terms of the
engagement with the AC;
Obtain information from the AC relevant to the audit;
Communicate to the AC an overview of the overall audit strategy and
timing of the audit; and
Provide the AC with timely observations arising from the audit that are
significant to the financial reporting process.

“Communicate to” as used in AS 16 is intended to encourage effective twoway communication between the auditor and AC throughout the audit.

Note: The communication requirements in AS 16 generally link to the
results of related audit performance requirements in other PCAOB
standards, or the conduct of the audit. AS 16 does not otherwise impose
new performance requirements, other than communications.
10
Reference: AS 16, Paragraph 3
Effective Date
Pending U.S. Securities and Exchange Commission (SEC) approval, AS 16 is
effective for:
11

Issuers:
o
Audits of fiscal years, and reviews of interim periods within those
fiscal years beginning on or after December 15, 2012.

Non-Issuers (Brokers and Dealers):
o
Upon SEC adoption of proposed amendments to Rule 17a-5.
o
If adoption of SEC amendments to Rule 17a-5 occurs prior to the
effective date of AS 16, requirements of AU 380, as amended, will
apply to such audits until AS 16 becomes effective.

Emerging Growth Companies (EGCs):
o
Subject to SEC approval in accordance with the Jumpstart Our
Business Start-Ups (JOBS) Act.
o
The PCAOB has requested applicability of AS 16 to the audits of
EGCs.
Definition of “Audit Committee”
12

AU 380 does not formally define the AC; rather it describes it as "those
that have responsibility for oversight of the financial reporting process.”

AS 16 incorporates definitions of an AC for:
o
Issuers: A committee (or equivalent body) established by and among
the board of directors of a company for the purpose of overseeing the
accounting and financial reporting processes of the company and
audits of the financial statements of the company; if no such
committee exists with respect to the company, the entire board of
directors of the company.
o
Non-Issuers: If no such committee or board of directors (or equivalent
body) exists with respect to the company, the person(s) who oversee
the accounting and financial reporting processes of the company and
audits of the financial statements of the company.
Reference: AS 16, Paragraph 1
Timing of Communications
13

AU 380 states that AC communications are incidental to the audit and are
not required to occur before the issuance of the auditor’s report on the
entity’s financial statements so long as the communications occur on a
timely basis.

AS 16 requires communications between the auditor and the AC to occur
in a timely manner and prior to the issuance of the auditor's report; or in
the case of interim reviews, prior to the registrant filing its periodic report
with the SEC.

Considerations for the timing of a particular communication include factors
such as the significance of the matters to be communicated and corrective
or follow-up action needed, unless other timing requirements are specified
by PCAOB rules or standards or the securities laws.
Reference: AS 16, Paragraph 26
Form and Documentation of Communications
14

AS 16 retains from AU 380 the option for auditors to communicate to ACs
either orally or in writing, unless otherwise specified in the standard.

The auditor must document the communications in the work papers,
regardless of whether the communications took place orally or in writing.
Reference: AS 16, Paragraph 25
Appointment and Retention
Significant Issues Discussed with Management in Connection with the Auditor’s
Appointment or Retention

AS 16 retains this requirement from AU 380.
Establish an Understanding of the Terms of the Audit
15

AS 16 retains the requirement from AU 310 for the auditor to establish an
understanding of the terms of the audit engagement, including the
responsibilities of the auditor and management, and the services to be
performed. However AS 16 requires this understanding to be established
with the “audit committee,” rather than the “client” under AU 310.

AS 16 requires the auditor to record the understanding in an engagement
letter that is provided to the AC annually; an enhancement from AU 310
that requires the auditor to document the understanding in the work
papers, preferably through a written communication with the client.
Reference: AS 16, Paragraphs 4-7
Obtaining Information Relevant to the Audit
16

AS 16 requires the auditor to inquire whether the AC is aware of matters
relevant to the audit, including, but not limited to, violations or possible
violations of laws or regulations.

This is intended to complement requirements in Auditing Standard 12 (AS
12), Identifying and Assessing Risks of Material Misstatement, for the
auditor to inquire of the AC about risks of material misstatement, including
inquiries related to fraud risks.
Reference: AS 16, Paragraph 8; AS 12, Paragraph 56.b
Overall Audit Strategy, Timing of the Audit,
and Significant Risks

17
AS 16 adds new requirements for the auditor to communicate:
o An overview of the overall audit strategy, including the timing of the
audit, and the significant risks the auditor identified during risk
assessment procedures.
o
Considerations regarding the participation of others in the audit.
o
Significant changes to the planned audit strategy or significant risks
initially identified, including the reasons for such change.
Reference: AS 16, Paragraphs 9-11
Considerations Regarding Other
Participants in the Audit

As part of communicating the overall audit strategy, the auditor should
communicate the following regarding other participants in the audit:
o The nature and extent of specialized skill or knowledge needed to
perform the planned audit procedures or evaluate audit results related
to significant risks;
o The extent to which the auditor plans to use the work of the company’s
internal auditors in the financial statement audit;
o The extent to which the auditor plans to use the work of internal
auditors, company personnel, and third parties working under the
direction of management or the AC when performing an audit of internal
control over financial reporting;
o The names, locations and planned responsibilities of other independent
public accounting firms or other persons, who are not employed by the
auditor, that perform audit procedures in current period; and
18
o The basis for the auditor’s determination that the auditor can serve as
principal auditor, if significant parts of the audit are to be performed by
other auditors.
Reference: AS 16, Paragraph 10
Results of the Audit


19
AS 16 incorporates new or enhanced communication requirements around
the results of the audit, including:
o
Significant accounting policies and practices
o
Critical accounting policies and practices
o
Critical accounting estimates
o
Significant unusual transactions
o
The auditor’s evaluation of the quality of the company’s financial
reporting
AS 16 also requires the communication of information related to:
o
Going concern
o
Uncorrected and corrected misstatements
o
Other information in documents containing audited financial statements
o
Difficult or contentious matters for which the auditor consulted
o
Management consultation with other accountants
o
Material written communications
o
Departure from the auditor’s standard report
o
Disagreements with management
o
Difficulties encountered performing the audit
o
Other matters
Significant Accounting Policies and Practices

AS 16 generally retains the requirement from AU 380 for the auditor to
communicate the following:
o
o
20
Management's initial selection of, or changes in, significant accounting
policies or the application of such policies in the current period; and
The effect on financial statements or disclosures of significant
accounting policies in (i) controversial areas or (ii) areas for which there
is a lack of authoritative guidance or consensus; or diversity in practice.
Reference: AS 16, Paragraph 12.a
Significant Accounting Policies and Practices
(cont’d)

AS 16 also enhances requirements from AU 380 related to the “quality, not
just acceptability” of accounting principles by requiring the auditor to
communicate the following qualitative information:
o
The results of the auditor's evaluation of, and conclusions about, the
qualitative aspects of the company's significant accounting policies and
practices, including situations in which the auditor identified bias in
management's judgments about the amounts and disclosures in the
financial statements; and
o
The results of the auditor’s evaluation of the differences between (i)
estimates best supported by the audit evidence and (ii) estimates
included in the financial statements, which are individually reasonable,
that indicate a possible bias on the part of company management.
21
Reference: AS 16, Paragraph 13.a
Critical Accounting Policies and Practices

AS 16 incorporates SEC rules that the auditor communicate all critical
accounting policies and practices to the AC, including:
o
o

22
The reasons certain policies and practices are considered critical; and
How current and anticipated future events might affect the
determination of whether certain policies and practices are considered
critical.
AS 16 also enhances requirements from AU 380, requiring communication
of the auditor’s assessment of management's disclosures related to the
critical accounting policies and practices, along with any significant
modifications to the disclosure of those policies and practices proposed by
the auditor that management did not make.
Reference: AS 16, Paragraphs 12.b and 13.b
Critical Accounting Estimates

AU 380 required the auditor to determine that the AC is informed about the
process used by management in formulating "particularly sensitive"
accounting estimates.

AS 16 requires communication of:
o A description of the process management used to develop critical
accounting estimates;
o Management’s significant assumptions used in critical accounting
estimates that have a high degree of subjectivity;
o Any significant changes management made to the process used to
develop critical accounting estimates or significant assumptions, a
description of management’s reasons for the changes, and the effects
of the changes on the financial statements.

AS 16 also requires communication of the basis for the auditor's
conclusions regarding the reasonableness of the critical accounting
estimates.
23
Reference: AS 16, Paragraphs 12.c and 13.c
Significant Unusual Transactions
24

AS 16 enhances the requirement under AU 380 for the auditor to
determine that the AC is informed about the methods used by the
company to account for significant unusual transactions.

Under AS 16 the auditor is required to communicate:
o
Significant transactions that are outside the normal course of business
for the company or otherwise appear to be unusual due to their timing,
size, or nature; and
o
The policies and practices management uses to account for significant
unusual transactions.

AS 16 also requires communication of the auditor's understanding of the
business rationale for significant unusual transactions.
Reference: AS 16, Paragraphs 12.d and 13.d
Communications from Management

AS 16 recognizes that management may communicate to the AC some or
all of the matters required under Paragraph 12 of the standard.

Should management communicate these matters, AS 16 does not require
the auditor to communicate this information at the same level of detail,
providing that the auditor satisfied all of the following:
o
o
o

Participated in management's discussion with the AC.
Affirmatively confirmed with the AC that management has adequately
communicated these matters.
With respect to critical accounting policies and practices, identified for
the AC those accounting policies and practices that the auditor considers
critical.
The auditor should communicate any omitted or inadequately described
matters to the AC.
Note: This applies only to matters required to be communicated under
Paragraphs 12(a)-(d), including significant accounting policies and practices;
critical accounting policies and practices; critical accounting estimates; and
significant unusual transactions.
25
Reference: AS 16, Paragraph 12
Other Matters Impacting the Quality
of Financial Reporting
Financial Statement Presentation
26

AS 16 requires the auditor to communicate the results of the auditor’s
evaluation of whether the presentation of the financial statements and the
related disclosures are in conformity with the applicable financial reporting
framework, including the auditor’s consideration of the form, arrangement
and content of the financial statements (including the accompanying
notes), encompassing matters such as terminology used, the amount of
detail given, the classification of items, and the bases of amounts set forth.

This replaces the requirement in AU 380 for the auditor to discuss the
auditor’s views about the clarity and completeness of the audited financial
statements.
Reference: AS 16, Paragraph 13.e
Other Matters Impacting the Quality
of Financial Reporting (cont’d)
New Accounting Pronouncements

AS 16 includes a requirement for the auditor to communicate situations in
which, as a result of the auditor’s procedures, 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.
Alternative Accounting Treatments

AS 16 requires communication of all alternative treatments permissible
under the applicable financial reporting framework for policies and
practices related to material items that have been discussed with
management, including the ramifications of the use of such alternative
disclosures and treatments and the treatment preferred by the auditor,
consistent with related SEC rules.
27
Reference: AS 16, Paragraphs 13.f, and 13.g
Going Concern

AS 16 includes a new requirement for the auditor to communicate the
following related to the auditor's evaluation of the company's ability to
continue as a going concern:
o
If the auditor believes there is substantial doubt about the company's ability
to continue as a going concern for a reasonable period of time, the
conditions and events that the auditor identified that, when considered in
the aggregate, indicate that there is substantial doubt.
o
If the auditor concludes, after consideration of management's plans, that
substantial doubt about the company's ability to continue as a going
concern is alleviated, the basis for the auditor's conclusion, including
elements the auditor identified within management's plans that are
significant to overcoming the adverse effects of the conditions and events.
o
If the auditor concludes, after consideration of management's plans, that
substantial doubt about the company's ability to continue as a going
concern for a reasonable period of time remains;
•
The effects on the financial statements and the adequacy of the related
disclosure and the effects on the auditor’s report.
28
Reference: AS 16, Paragraph 17
Uncorrected and Corrected Misstatements


AS 16 enhances the communication requirements from AU 380 regarding
uncorrected and corrected misstatements, by requiring the auditor to
provide the AC the schedule of uncorrected misstatements related to
accounts and disclosures that was presented to management
(accompanying the management representation letter), aligning with SEC
rules that the auditor provide to the AC other material written
communications with management.
AS 16 also requires the auditor to discuss with the AC:
o
o
o
29
The basis for the determination that the uncorrected misstatements were
immaterial, including qualitative factors considered. Alternatively, the auditor
can determine that management has adequately discussed the basis for this
determination with the AC.
Uncorrected misstatements or matters underlying those uncorrected
misstatements that could potentially cause future-period financial statements to
be materially misstated, even if the auditor has concluded that the uncorrected
misstatements are immaterial to the financial statements under audit; and
Corrected misstatements, other than those that are clearly trivial, that might not
have been detected other than through audit procedures; and discuss any
implications that such corrected misstatement might have on the financial
reporting process.
Reference: AS 16, Paragraphs 18 and 19
Other Communication Requirements
Other Information in Documents Containing Audited Financial Statements

AS 16 retains the requirement from AU 380 for the auditor to communicate
the auditor’s responsibility under PCAOB rules and standards for such
information, any related procedures performed and the results of such
procedures, including any material inconsistencies or misstatements of fact.
Difficult or Contentious Matters for which the Auditor Consulted

AS 16 includes a new requirement for the auditor to communicate difficult or
contentious matters for which the auditor consulted outside the engagement
team, and that the auditor reasonably determines are relevant to the AC's
oversight of the financial reporting process.
Management Consultation with Other Accountants

30
AS 16 narrows communications under AU 380 by requiring the auditor to
discuss the auditor’s views on significant auditing and accounting matters for
which management consulted with other accountants when the auditor
identifies a concern regarding such consultations.
Reference: AS 16, Paragraphs 14, 15, and 16
Other Communication Requirements (cont’d)
Material Written Communications

AS 16 incorporates the auditor communication requirements under SEC
rules, for the auditor to communicate to the AC other material written
communications between management and the auditor.
Departure from the Auditor’s Standard Report

AS 16 includes a new requirement for the auditor to communicate to the
AC the following related to the auditor’s report:
o
When the auditor expects to modify the opinion in the auditor's report,
the reasons for the modification, and the wording of the report; and
o
When the auditor expects to include explanatory language or an
explanatory paragraph in the auditor's report, the reasons and the
wording.
31
Reference: AS 16, Paragraphs 20 and 21
Other Communication Requirements (cont’d)
Disagreements with Management

AS 16 retains the requirement from AU 380 for the auditor to communicate
any disagreements with management about matters, whether or not
satisfactorily resolved, that individually or in the aggregate could be
significant to the company’s financial statements or auditor’s report.
Difficulties Encountered Performing the Audit


AS 16 retains the requirement from AU 380 for the auditor to communicate
significant difficulties encountered during the audit.
Examples of significant difficulties are provided in AS 16, such as significant
delays by management, unreasonable management restrictions, an
unreasonably brief time to complete the audit, unexpected extensive effort
required by the auditor to obtain evidence, or management’s unwillingness
to make or extend its assessment of going concern.
Other Matters

32
AS 16 includes a new requirement for the auditor to communicate other
matters arising from the audit that are significant to the oversight of the
company's financial reporting process, such as complaints or concerns
regarding accounting or auditing matters that have come to the auditor's
attention during the audit and the result of the auditor’s procedures
regarding such matters.
Reference: AS 16, Paragraphs 22, 23 and 24
Communications with the
Audit Committee on
Inspection and Quality Control
Matters
33
Overview of PCAOB Release

On August 1, 2012, the PCAOB issued PCAOB Release No. 2012-003,
Information for Audit Committees About the PCAOB Inspection Process
(Release).

The Release is intended to:
o
Inform ACs about the PCAOB inspection process and the meaning of
inspection findings.
o
Better equip ACs to engage audit firms in meaningful discussions on
this topic.

The Release specifically identifies topics ACs may wish to discuss with
auditors in order to gain a better understanding of PCAOB inspections of
audit firms.

PCAOB Release available at:
http://pcaobus.org/Inspections/Documents/Inspection_Information_for_Audit_Committees.pdf
34
Nature of PCAOB Inspections

PCAOB inspections assess compliance with certain laws, rules and
professional standards in connection with firms’ audits of issuers.

A PCAOB inspection of an audit firm examines (i) a limited number of audits
performed by the firm and (ii) certain elements of the firm’s system of quality
control. Inspection findings with respect to these areas are contained in the
following parts of the inspection report:
o
o
35
Part I - Describes audit deficiencies at an engagement level where
inspection staff found that the auditor failed to gather sufficient audit
evidence to support an audit opinion. This may relate to the opinion that
the financial statements are fairly stated or the opinion that the
company's internal control is effective. Part I findings are made public
and are available on the PCAOB's web site.
Part II - Typically describes deficiencies in the firm's overall system of
quality control such that the Board has doubts that the system provides
reasonable assurance that professional standards are met. The PCAOB
is prohibited by law from publicly releasing these Part II findings unless
the firm fails to remediate these findings to the Board's satisfaction
within twelve months of issuance of the inspection report.
Public Portions of PCAOB Inspection
Reports and Firm Responses
36

Review of all evidence—deficiency had a specific and significant
consequence:
o
The firm did not satisfy its responsibility to obtain reasonable assurance
about whether the financial statements were free from material
misstatements.
o
Insufficient basis for the audit opinion and absent obtaining additional
evidence the firm could not have such a basis.

Does not necessarily mean that the financial statements are materially
misstated:
o
The firm may do more work to support the position, may result in no
change, or may result in finding material misstatement.

Frequent firm responses to public portion of report:
o
Documentation deficiencies and not deficiencies in performance of
procedures to obtain audit evidence.
o
Criticisms are merely differences in professional judgment within a range
of acceptable professional judgment.
o
Firm assertions that it has addressed criticisms in the report in
accordance with PCAOB standards AU 390, Consideration of Omitted
Procedures After the Report Date.
Board Perspective on Frequent Firm
Responses and Potential AC Questions
37

Documentation Deficiencies
o
How were the procedures performed?
o
Why were they not documented?
o
How could the procedures have been performed and reviewed without
documentation being created?

Differences in Professional Judgment
o
What point of professional judgment does the firm contend is at issue?
o
How would the firm defend its judgment?
o
What does the firm understand the staff’s position to be on the rejection
of the firm’s position?

Assertion that the Firm has Addressed Criticisms (AU 390)
o
Does the firm believe that its opinion was sufficiently supported at the
time of issuance?
o
Did the firm obtain additional audit evidence through additional
procedures?
Information ACs Might Seek
from Auditors
38

Whether the company’s audit has been selected for review.

Whether any information has come to the auditor’s attention that the audit
opinion on the company’s financial statements is not sufficiently supported
or otherwise reflects negatively on the firm’s performance and what the firm
intends to do about it.

Whether questions have been raised about the fairness of the financial
statements or the adequacy of the disclosures.

Whether any independence questions have been raised.

Whether any of the matters in the public portion of the reports of other firm
engagements involve issues and audit approaches similar to those that arise
or could arise in the audit of the company.

If similarities exist, whether and how did the firm become comfortable that
either they did not occur in the company’s audit or have been remedied.

Whether issues described in the Board’s general 4010 reports relate to the
firm’s practices and the company’s audit.

Whether the firm is aware of PCAOB communication of issuer specific
information to the SEC.
Quality Control Deficiencies
39

Three Primary Categories
o
Those that focus on a specific aspect of the firm’s audit work—based
on Part I findings or other findings that may indicate a potentially
significant defect in the firm’s quality controls even with a sufficiently
supported audit opinion.
o
Those that may relate to matters that affect audit performance across
various aspects of a firm’s audits.
o
Others that may relate to aspects of the firm’s management of its audit
practice.

Information that ACs Might Seek from Auditors
o
Changes the firm has been making to policies and procedures to
address quality control issues raised by PCAOB.
o
Whether the firm submitted a written submission to the PCAOB by the
12 month deadline.
o
Whether a final determination has been made by the PCAOB.
o
Is there a negative PCAOB determination that has not yet been made
public.
Overview of CAQ Practice Aid

Transparent and candid communication between the auditor and the AC about
the firm’s quality control system, including information about the nature and
impact of PCAOB inspection results, supports the AC’s role in overseeing the
external auditor.

Recently, the CAQ issued a Practice Aid, Discussions with Audit Committees
About Inspection Findings and Quality Control Matters intended to encourage
audit firms to proactively communicate in a timely, forthright, and robust
manner, information about relevant quality control matters – including those
related to inputs from internal firm reviews, peer reviews, and PCAOB
inspections – and improvements they are making to their system of quality
control.

We believe many firms already engage in such discussions, however this
Practice Aid is being issued as part of the CAQ’s commitment to share best
practices across its member firms.

CAQ Practice Aid available at:
http://www.thecaq.org/resources/pdfs/AuditCommitteeCommunications.pdf
Slide 40
Communication of Engagement Inspection Matters
Communication of deficiencies identified by a PCAOB or internal inspection
of an issuer audit engagement

The Practice Aid encourages communications that explain the nature of
the findings, including the:
o Procedures considered to be either omitted or insufficient;
o Audit firm’s perspective on the issues identified; and
o Nature and extent of any additional audit procedures that were
performed to address the deficiency.

The AC should also be informed if the issuer’s underlying accounting or
management’s assessment on internal control over financial reporting
has been called into question.

The timing for discussing various aspects of inspection activity with ACs
should be considered.
Slide 41
Communication of Quality Control Matters
Communication
of Quality
Matters
Communication
about the firm’s overall
system ofControl
quality control
and related
improvements

The Practice Aid encourages audit firms to share information with the AC
related to the firm’s system of quality control and steps the firm is taking to
improve its system of quality control.

Through these communications, the AC can obtain useful information about
a firm’s commitment to audit quality.

While the precise form of these communications should be decided by each
firm, the objective is to candidly convey the steps the firm is taking to
improve its quality controls based on its quality inputs, including internal firm
reviews, peer reviews, and PCAOB inspections.
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Tailored Communication Plan

Communications with an AC should be tailored to the needs of each AC.

To inform auditor and AC communications regarding inspections and quality
control improvement, consideration should be given to the PCAOB’s Release.

Elements for consideration in developing a tailored communication plan
include:
1. Whether the issuer’s audit was selected for inspection by the PCAOB and,
if so, the status of the progress, as deemed necessary, of that inspection.
2. Information about the firm’s responses to the PCAOB findings with respect
to the issuer’s audit.
3. Whether any of the matters described in the public portion of a PCAOB
inspection report on the firm, including matters not involving the issuer’s
audit, involve issues and audit approaches similar to those that arose in the
audit of the issuer’s financial statements.
4. What steps the firm is taking to address issues identified with respect to its
system of quality control.
5. Whether issues described by the PCAOB in general reports summarizing
inspection results across groups of firms (i.e., 4010 reports) relate to the
audit of the issuer’s financial statements and internal controls over financial
reporting, and how the firm is addressing those issues.
Slide 43
Related Resources
 PCAOB Auditing Standard 16, Communications with Audit
Committees (AS 16) and Related Amendments to PCAOB Standards
Available at:
http://pcaobus.org/Rules/Rulemaking/Docket030/Release_2012-004.pdf
 PCAOB Release No. 2012-003, Information for Audit Committees
About the PCAOB Inspection Process
Available at:
http://pcaobus.org/Inspections/Documents/Inspection_Information_for_Audit_
Committees.pdf
 CAQ Practice Aid, Discussions with Audit Committees About
Inspection Findings and Quality Control Matters
Available at:
http://www.thecaq.org/resources/pdfs/AuditCommitteeCommunications.pdf
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Appendix A - Overview of AS 16 Required Communications
AS 16 Required Communications
New, Enhanced, or
Retained*
Significant Issues Discussed with Management in Connection with
the Auditor’s Appointment or Retention (Paragraph 4)
Retained
Establish an Understanding of the Terms of the Audit (Paragraphs 5-7)
Enhanced
Obtaining Information Relevant to the Audit (Paragraph 8)
Enhanced
Overview of the Audit Strategy, Timing of the Audit, and Significant
Risks (Paragraphs 9-11)
Results of the Audit (Paragraph12):
•
•
•
•
New
Enhanced
Significant Accounting Policies and Practices
Critical Accounting Policies and Practices**
Critical Accounting Estimates
Significant Unusual Transactions
Auditor’s Evaluation of the Quality of the Company’s Financial
Reporting** (Paragraph 13)
Enhanced
*This column indicates whether a required communication under AS 16 is new, enhanced, or retained from the interim PCAOB
standards. New communication requirements are generally linked to performance requirements in other PCAOB standards. Many
auditors may already communicate with ACs about the matters that are the subject to new or enhanced requirements.
**Incorporates certain auditor communication requirements in Exchange Act Section 10A(k) and SEC Rule 2-07 of Regulation S-X.
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Appendix A - Overview of AS 16 Required
Communications (Cont’d)
AS 16 Required Communications
Other Information in Documents Containing Audited Financial
Statements (Paragraph 14)
New, Enhanced, or
Retained*
Retained
Difficult or Contentious Matters for Which the Auditor Consulted
(Paragraph 15)
New
Management Consultation with Other Accountants (Paragraph 16)
Enhanced
Going Concern (Paragraph 17)
New
Uncorrected and Corrected Misstatements** (Paragraphs 18-19)
Enhanced
Material Written Communications** (Paragraph 20)
Enhanced
Departure from the Auditor’s Standard Report (Paragraph 21)
New
Disagreements with Management (Paragraph 22)
Retained
Difficulties Encountered Performing the Audit (Paragraph 23)
Retained
Other Matters (Paragraph 24)
New
*This column indicates whether a required communication under AS 16 is new, enhanced, or retained from the interim PCAOB
standards. New communication requirements are generally linked to performance requirements in other PCAOB standards. Many
auditors may already communicate with ACs about the matters that are the subject to new or enhanced requirements.
**Incorporates certain auditor communication requirements in Exchange Act Section 10A(k) and SEC Rule 2-07 of Regulation S-X.
Slide 46
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