On May 7, 2015, the Public Company Accounting Oversight Board ("PCAOB") issued an Audit Committee Dialogue (the "Dialogue"), a first in the series of its electronic newsletters intended for public company audit committees. The Dialogue offers various insights and observations following PCAOB inspections of public company auditors to assist and guide such audit committees in their interactions with and oversight of their auditors in 2015. Namely, PCAOB Chairman, James Doty, noted that the Dialogue was developed with "a view to help raise awareness of audit risks and challenges… [since] audit committees play an important role in protecting investors' interest in accurate financial reports and reliable audits."
The Dialogue is a result of PCAOB’s analysis of its inspections of more than 650 audit firms and consists of highlights of pivotal areas of recurring and emerging risks observed in those inspections. Specifically, the Dialogue sets out four areas in which significant deficiencies have been found in recent years, explains how audit committees may use this information, and suggests a number of questions that audit committees may want to consider addressing to their auditor. The four areas addressed in the Dialogue are:
- Internal control over financial reporting;
- Assessing and responding to risks of material misstatement;
- Accounting estimates, including fair value measurements; and
- In cross-border audits, referred work, i.e., work performed by other audit firms and used by the signing audit firm.
In addition, the Dialogue also identifies the following four potential emerging sets of risks that are informing the PCAOB's inspection planning in 2015, including:
- Increase in mergers and acquisitions;
- Decrease in oil prices;
- Undistributed foreign earnings; and
- Maintaining audit quality when growing other business lines.
A complete copy of the Audit Committee Dialogue can be accessed and downloaded from the PCAOB website.