Getting into the head of audit committees is always a challenge for management and external auditors alike as they try to anticipate the priorities of some of their mostn important stakeholders.
Recently, the Public Company Accounting Oversight Board (PCAOB)
published what it says are issues at the top of mind for this key financial constituency. The report is based on the PCAOB’s conversations with 211 public audit committee chairs in 2022.
Below are the biggest takeaways:
The Great Resignation Fallout
Audit committee chairs told the PCAOB that turnover within company financial reporting staff and audit engagement teams had become their biggest concern and that the impact of the “great resignation” on the accounting profession was the most discussed topic among their ranks. The decline in the number of experienced staff, including those with a CPA, was a particular concern.
“Most audit committee chairs remain alert to the impact that staffing turnover can have on a public company’s financial reporting process and on the conduct of audits,” the PCAOB report said
Post Pandemic Remote Workplace Risk
Despite telling the PCAOB that staff continued to produce high quality work, the audit committee chairs told the PCAOB they were very focused on the long term risks that the new hybrid workplace environment was having on the oversight of controls and cybersecurity associated with the audit process.
“From the audit committee chairs’ perspectives, auditing remotely seemed more effective for lower- risk areas, such as vouching cash, as opposed to procedures such as inventory observation,” the report said.
The report adds that the new paradigm resulted in hightened supervision and reviews by audit committees.
Too Late to Communicate
A large number of audit committee chairs interviewed by the PCAOB cited “inconsistent or last-minute communication with auditors” as a growing issue and that the area needed improvement.
While those leaders said that the auditor's overall approach to communication in areas like emerging issues and education should be commended, they added there was room for improvement in audit status updates.
“Audit committee chairs felt that early and ongoing communication with their auditors would help minimize the possibility of surprises throughout the audit,” the report states.
Keeping CAM’s Relevant
The ongoing implementation and communication of critical audit matters (CAMs) by auditors was seen as a positive force in the relationship with audit committees. Whether it was around revenue recognition, intangible assets or goodwill, the audit commitment chairs said that auditors were prepared. Albeit with one caveat, according to the PCAOB.
“[A] small percentage of audit committee chairs questioned whether CAMs reporting is becoming a generic compliance exercise, sometimes resulting in “boilerplate” language provided by the auditor.”
Everything But the Financial Statements
An “almost universal” concern from audit committee members interviewed by the PCAOB was the accuracy of information outside of financial statements, including non-GAAP measures and metrics.
“In discussing information outside the financial statements, audit committee chairs also
mentioned that they had general forward- looking discussions with their auditors and that the discussions were typically about keeping abreast of the latest regulatory developments and the activities of their peers in areas that may impact the financial statements and related disclosures” the report states.
The PCAOB added that many audit committee chairs “are increasingly asking questions of their auditors about the inclusion of non-GAAP measures.”