PCAOB Proposes New Standard on Auditor Communications with Audit Committee

At an open meeting on March 29, 2010, the Public Company Accounting Oversight Board proposed for comment a new auditing standard to clarify and expand the requirements for auditors’ communications with audit committees. The proposed standard represents a further effort to promote dialogue between the auditor and the audit committee about accounting and auditing matters, notably about significant risks and the use of judgments and estimates in the specific context of a company’s financial reports. The stated objectives of the PCAOB in advancing the proposed standard are to “(1) enhance the relevance and effectiveness of the communications between the auditor and the audit committee; and (2) emphasize the importance of effective, two-way communications between the auditor and the audit committee to better achieve the objectives of the audit.” More importantly, a key unstated premise is that audit committees may not now be sufficiently well-equipped to provide effective oversight of public company financial statements and the financial reporting process. Even pending the adoption of the new standard, audit committees should evaluate the quality of their existing dialogue with the auditor and ways that it can be improved.