On October 7, PCAOB Chair Erica Williams delivered remarks audit committee responsibilities at the University of California-Irvine’s Audit Committee Summit. Her comments included the following points:
The PCAOB recently issued a publication focused on questions for audit committee members to consider in their interactions with their auditors. (See We Have Some Questions for You. The PCAOB Releases a New Audit Committee Resource, August 2022 Update.)
PCAOB inspection reports can be useful in connection with an audit committee’s evaluation of its auditor. “If you see a particular firm has had deficiencies in the past, ask them what they are doing to avoid repeating those deficiencies in your audits.” Audit committees should also ask for information beyond what appears in PCAOB public reports. “Find out what your firms are doing to ensure the highest quality in your audit. How does their system of quality control work, and how do they determine that it is working effectively both at the engagement and the firm levels?”
Independence is a responsibility of both the auditor and the company. Audit committees should assess the auditor’s independence “carefully and regularly.”
Audit committees should make sure the auditor’s skills, expertise, and experience are the right fit for the specific needs of the company.
The audit committee should understand the company’s “control environment, communication, monitoring, risk assessment, and policies and procedures. The better you understand your company’s control and compliance environment, the better you can protect the integrity of its financial disclosures.”
The PCAOB plans to release rule proposals regarding the auditor’s responsibility when he or she detects possible noncompliance with laws and regulations (NOCLAR). Auditors are required to assess illegal acts and notify the audit committee, and committees should consider commenting on the Board’s NOCLAR proposals.
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