Tag: PCAOB

Audit committee chairs identify effective practices for audit quality improvement

In December, the PCAOB posted a report on the results of its 2019 conversations with almost 400 audit committee chairs, focused on audit committee perspectives on audit quality assessment and improvement, auditor communications, new auditing and accounting standards, and technology and innovation. Valuably, the report identifies practices—not necessarily endorsed by the PCAOB—that the committee chairs found to be most effective for improving audit quality across these categories. The report also includes a few PCAOB staff responses to FAQs raised during the conversations.

What is going on at the PCAOB?

Yikes! What is going on at the PCAOB? You may recall that, back in 2018, former staffers at the PCAOB and former partners of KPMG were charged by the SEC in connection with  “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG.” You know, that case where the former PCAOB staffers were accused of leaking to KPMG the plans for PCAOB inspections of KPMG—“literally stealing the exam.” (See this PubCo post.) The same scheme led the U.S. Attorney’s Office for the SDNY to file criminal charges against the former staffers, and some have actually been sentenced to prison.  But that’s not even the half of it.

PCAOB offers help for audit committees about CAMs

The PCAOB has just released a new resource for audit committees about critical audit matters, designed to “inform audit committees as they engage with their auditors on the new CAM requirements.” The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019.  For audits of all other companies to which they apply (e.g., not EGCs), CAM requirements will be effective for fiscal years ending on or after December 15, 2020. The resource document provides information about CAM basics, as well as PCAOB staff guidance through responses to FAQs and, importantly, questions audit committees could consider asking their auditors. At the same time, the PCAOB also issued a new resource about CAMs for investors.

Tips on CAMs at PLI panel

An article in the Federal Securities Law Reporter reports on some tips gleaned from a discussion of, what else, “critical audit matters” on a PCAOB panel at PLI’s 34th Midyear SEC Reporting and FASB Forum.   The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019.

PCAOB provides guidance on CAMs

Coming soon to a financial statement near you: CAMs!  Late this summer, in audit reports for large accelerated filers with June 30 fiscal year ends, auditors will begin to disclose “critical audit matters.”  Under the new auditing standard for the auditor’s report (AS 3101), CAMs are defined as “matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment.” Essentially, the concept is intended to capture the matters that kept the auditor up at night, so long as they meet the standard’s criteria.  Compliance will be required for audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for audits of all other companies to which the requirement apply (not EGCs) for fiscal years ending on or after December 15, 2020.  With that in mind,  the PCAOB has released three new documents offering guidance on CAM implementation: The Basics; A Deeper Dive on the Determination of CAMs; and Staff Observations from Review of Audit Methodologies.  (See also thecorporatecounsel.net blog and this article in ComplianceWeek.)

In light of the recent fraud charges against audit firm partners and the PCAOB, what questions should audit committees ask their outside auditors?

Recent civil and criminal fraud charges against partners at KPMG and staffers at the PCAOB, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG,” have led some managements and audit committee members to consider whether there is more they should be doing to ensure that their outside audit firms are not plagued by similar concerns. This article from Compliance Week sifts through a speech by Helen Munter, PCAOB director of inspections and registration, to assemble a series of questions that, in light of these recent charges, may be appropriate for audit committee members to pose to their outside audit firms.

SEC files charges against former PCAOB staff and former KPMG partners—collateral impact?

Yesterday, the SEC filed charges against six CPAs, including former staffers at the PCAOB and former partners of KPMG, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG.”  All have now been separated from KPMG or the PCAOB, and the U.S. Attorney’s Office for the SDNY has filed criminal charges.  Here is the press release, which advises that the “SEC stands ready to work with issuers to ensure that collateral effects, if any, to issuers and, in particular, their shareholders are minimized.”