Each year, the Public Company Accounting Oversight Board’s Division of Registration and Inspections staff invites audit committee chairs of U.S. public companies selected for inspection to participate in “candid conversations in an informal setting.” In 2023, 230 audit committee chairs accepted this invitation; 69 percent of these chairs had not previously engaged in such a dialogue with the PCAOB staff. Of the 230 chairs that spoke with the PCAOB in 2023, half had over 10 years of audit committee experience. Spotlight: 2023 Conversations With Audit Committee Chairs (2023 Conversations Report) presents the staff’s “high-level observations and takeaways from those conversations.” This is the fifth year the PCAOB has published a summary of the inspection staff’s interactions with audit committee chairs. For last year’s report, see No Surprises, Please. 2022 PCAOB Conversations with Audit Committee Chairs, October 2023 Update.
According to the 2023 Conversations Report, the PCAOB staff asked audit committee chairs what topics they discussed with their auditors regarding the current economic and audit workforce environments.
Economic environment. Topics mentioned included interest rate fluctuations, inflation, supply-chain challenges (e.g., delays in or an inability to obtain necessary materials), and the economic impacts of the Russia-Ukraine war. The report states that these discussions “largely concerned the risks that these issues presented in the audit and how the audit team was addressing them.”
Audit workforce environment. The audit committee chairs were “pleased with their auditors’ ability to retain a skilled workforce and with their use of technology” in the audit. In contrast, last year chairs worried that audit staff turnover may have impacted audit efficiency. See No Surprises, Please, above. However, consistent with the prior year, some audit committee chairs voiced concerns about the impact of remote and hybrid work environments on audit quality, although most of those interviewed were confident in the quality of audits notwithstanding remote or hybrid work elements. The chairs also noted that the prevalence of remote and hybrid work could adversely affect the long-term development of audit professionals.
The PCAOB staff also asked audit committee chairs to describe other topics they discussed with their auditors. In addition to communications required under the auditing standards, respondents identified such matters as “goodwill impairment, interest rates, internal control deficiencies, fraud, liquidity, cybersecurity, and auditor independence.” They also noted that many of these discussions resulted in critical audit matters – CAMS -- in the auditors’ reports. (One of the CAM criteria is that the matter was communicated or required to be communicated to the audit committee.) In general, the audit committee chairs that spoke to the PCAOB were satisfied with the level of their communications with their auditor and specifically with communications concerning CAMs.
Finally, the inspectors asked the audit committee chairs how their committee monitors the quality control systems and independence of their auditor. Interviewees cited discussion of “auditor presentations” and of the firm’s PCAOB inspection report, including how the firm is remediating deficiencies. However, the 2023 Conversations Report notes that “some audit committees did not appear to spend the same amount of time on this review.”
Audit Committee Takeaways
The 2023 Conversations Report provides insight into the current views and concerns of audit committee chairs. Committees may want to use it as an indicator of the issues that their peers are raising with their auditors. In addition, an audit committee chair contacted by the PCAOB staff as part of an inspection may want to review the 2023 Conversations Report and prior reports on these dialogues as a way of preparing for the interview.
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