PCAOB Suggests What Auditors Should Ask Before Accepting an Engagement

The Public Company Accounting Oversight Board has issued Engagement Acceptance, a publication in the Board’s Audit Focus series.  Engagement Acceptance highlights reminders and considerations related to engagement acceptance and suggests questions that an auditor should ask before accepting an engagement. Although the PCAOB prepared Engagement Acceptance as guidance for auditors, particularly those who audit smaller public companies or brokers and dealers, audit committees may also want to review the paper.  Audit firms may ask the audit committee to respond to the questions the PCAOB suggests when the company is seeking to engage a new auditor, and the committee should be prepared to respond.

The PCAOB’s auditing and quality control standards contain various requirements related to engagement acceptance. The new quality control standard, QC 1000, which will take effect on December 15, 2025, requires the auditor to consider the nature and circumstances of the potential engagement and to make appropriate judgments about the associated risks and the audit firm’s ability to perform the engagement under applicable professional and legal requirements.  In addition, AS 2610 requires a successor auditor to make certain inquiries of the predecessor auditor.  AS 1301, the standard governing communications with audit committees, states that the auditor should discuss with the audit committee any significant issues that the auditor discussed with management in connection with the auditor’s appointment.  The PCAOB’s suggested auditor questions and considerations reflect the requirements of these standards. 

Some of the questions that Engagement Acceptance suggests that auditors explore before accepting an engagement involve the potential client’s audit committee or might be posed to the audit committee.  These include:

• Were there any recent changes in ownership, company management, the board of directors, or the composition of the audit committee related to the prospective engagement?  What were the reasons for the changes?

• What are the qualifications of the company’s current management team and the audit committee associated with the prospective engagement, and do these qualifications enable them to execute their roles and responsibilities effectively?

• Were there any risk factors that indicate that company management and those charged with governance lack integrity?

• Was the company’s management or audit committee aware of any improper activities conducted by the former auditor during interim reviews or annual audits, including activities related to the supervision of the audit or to the engagement quality review?

• Was the company’s management or audit committee aware of any illegal acts identified by the predecessor auditor and not reported to the U.S. Securities and Exchange Commission (SEC or “Commission”) or any other relevant regulators?

Audit committees should also be aware of the questions that the PCAOB suggests a successor auditor ask of the predecessor auditor. Questions that may bear on the audit committee’s role include:

• Is there information that might bear on the integrity of management?

• Did the predecessor auditor have any disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters?

• What communications were made between the predecessor auditor and the audit committee (or others with equivalent authority and responsibility), regarding fraud, illegal acts by clients, and internal-control-related matters?

• What is the predecessor auditor’s understanding as to the reason for the change of auditors?

• What is the predecessor auditor’s understanding of the nature of the company’s relationships and transactions with related parties and significant unusual transactions? ​

Audit Committee Takeaways

As noted above, Engagement Acceptance is a useful resource for audit committees when selecting a new auditor.  Committees naturally tend to focus on the questions that they plan to ask prospective audit firms.  It is, however, useful to also reflect on what the auditor candidates may ask the committee and to be prepared with cogent and informative answers.

Audit committees might also find these questions helpful from another perspective.  Any sophisticated auditor would likely seek to explore the issues raised in the PCAOB’s suggested questions before accepting an engagement. Moreover, the PCAOB's standards require some of the inquiries. If candidates do not ask these or comparable questions, the audit committee may view that as a red flag concerning the auditor’s competence.