On August 1, 2012, the Public Company Accounting Oversight Board (“PCAOB”) issued an informational report about its inspection process that is intended to serve as a guide for audit committees to learn more about the inspection process and offer questions the audit committee may ask the audit firm about its inspection results. The PCAOB issued the release with the goal of helping audit committees engage in more informative discussions with audit firms about the inspection process in order to aid audit committees in their oversight responsibilities related to financial reporting. PCAOB inspections of an audit firm examine both aspects of a limited number of audits performed by the firm (Part I of the inspection report) and elements of the firm’s overall system of quality control over its audit process (Part II of the inspection report, which is confidential). The release provides information about both parts of the PCAOB’s inspections and lists specific suggestions for initiating or enhancing discussions with audit firms about the inspection results.
Specifically, the release suggests that audit committees may wish to ask the engagement team: (1) whether the company’s audit was selected for PCAOB inspection and whether the PCAOB identified any deficiencies; (2) whether the PCAOB identified deficiencies in other audits performed by the audit firm; (3) how the audit firm responded to the PCAOB’s findings; and (4) whether any deficiencies regarding the audit firm’s quality control were identified and the firm’s remedial efforts in response. On point 3, the PCAOB said in the report that it views with skepticism responses along the lines of “It was just a documentation problem” or “There was a difference in professional judgment.” The PCAOB also underscored in its report that it encouraged audit committee members to read its release on the inspection process. The full release (PCAOB Release No. 2012-003) can be found on the PCAOB’s website at http://pcaobus.org/Inspections/Documents/Inspection_Information_for_Audit_Committees.pdf.