Audit Committee Chairs Discuss the Impact of Covid-19 with the PCAOB
The PCAOB has published Conversations with Audit Committee Chairs: COVID-19 and the Audit (Conversations). As part of its 2020 audit firm inspections, the Board asked audit committee chairs for their thoughts on the effect of COVID-19 on financial reporting and auditing. In Conversations, the PCAOB summarizes two themes in these discussions – the impact of remote work and the impact on auditor communications with the audit committee.
Increased Risks Associated with Remote Work
The PCAOB reports that risks related to remote work were the most prevalent topic in its discussions with audit committee chairs. In particular, many audit committee chairs identified “cyber-related risks—such as increased phishing attempts and email security” as a top concern resulting from the move to remote work. Conversations includes examples of questions that it may be helpful for audit committees to discuss with their auditor in understanding these types of risks:
Will additional time be needed to get the audit work done remotely? What complexity does working remotely add to the audit?
Will working remotely affect productivity of audit engagement team members? If so, does the audit plan need to be updated, and do fees need to be revisited?
Has remote work affected the company’s ICFR? If so:
o Is the auditor including new controls in their assessment, or evaluating changes to existing ones?
o Has the auditor identified any concerns with respect to segregation of duties?
If a review of the issuer’s interim financial information has been completed already, are there any lessons learned that can be applied to the year-end audit?
Are there any technology enhancements or collaborative tools that should be considered to support longer-term remote work?
Has the auditor assessed potential risks of material misstatement related to cybersecurity, and how does the auditor plan to respond to those risks?
Increased Communications with the Auditor
Most audit committee chairs reported more frequent communication with their auditor as a result of the pandemic. They highlighted three forms of communication as helpful:
Discussions about trends auditors are seeing across their client base, particularly those pertaining to industry peers.
Presentations on areas of the audit that may or will warrant increased attention due to the effects of COVID-19, as well as how the auditor plans to approach those areas.
Audit firm resources and webinars with industry-specific content.
Audit committee chairs also noted that they expect to stay engaged with both management and auditors to understand how they are addressing emerging issues. Conversations identifies four considerations for these ongoing audit committee communications:
Engage with the auditor and management to discuss potential challenges to a timely completion of the audit. Review and discuss the timeline for the phases of audit work.
Determine a good cadence for communications that include both the auditor and management so that the audit committee receives the information it needs in a timely manner, while also considering the additional demands on auditors and management during the pandemic.
Discuss any changes to the audit plan with the auditor, including changes to areas of focus and how the auditor plans to address areas of new or modified risk. Discuss if there are changes to how the auditor will identify and test internal controls.
Discuss which disclosures may need to change as a result of COVID-19.
Comment: During the past several months, there has been a deluge of guidance and advice concerning the impact of COVID-19 on financial reporting and oversight. See, e.g., COVID-19 Disclosure and Financial Reporting Guidance: Part III, July-August 2020 Update. The PCAOB’s report addresses the challenges audit committees are facing because of the pandemic from a somewhat different angle – the experience of a group of audit committee chairs. The suggested questions and considerations in Conversations should be helpful as audit committees adjust their practices to the COVID-19 environment.