Audit committees have a little more ammunition at their disposal to take up a discussion with their auditors over how the audit firm has fared through its regulatory inspection.

The Center for Audit Quality has issued a practice aid targeted to auditors to encourage them to communicate proactively with their client audit committees about any inspection findings against the firm and any improvements the firm may be making to its quality control as a result of inspections. The practice aid follows recent guidance from the Public Company Accounting Oversight Board directed at audit committees offering suggestions on how to question auditors about inspection results to draw out the greatest insights.

The CAQ alert says many audit firms are discussing inspection and quality control issues with audit committees, but it offered the alert as a way to offer its own suggestions about how firms can communicate proactively “in a timely, forthright and robust manner” with audit committees. “Proactive engagement by auditors with audit committees regarding inspections and firm quality control improvement initiatives should provide audit committees valuable insights into the firm's quality control program,” said Cindy Fornelli, CAQ executive director, in a prepared statement.

The CAQ says auditors should discuss with audit committees any audit deficiencies identified by an inspection, either by the PCAOB or internally, of the company's own audit engagement. Auditors should explain audit procedures that were deemed to be either inadequate or missed entirely, the audit firm's perspective on the issues that were raised in the inspection, and any additional audit procedures that may have been pursued in response to the inspection, the CAQ says. The alert says audit committees should ask auditors about any accounting or internal controls issues that were called into question and about any foreign regulatory reviews that might be applicable to the company's audit.

The CAQ alert also advises auditors to develop a communications plan specifically tailored to a given company's own audit, addressing whether the company's audit was selected for inspection, and if so, what the PCAOB had to say about any accounting or internal control issues that may have been flagged, any findings of misstatements or inadequate disclosures, or any independence concerns that might have been raised. Auditors also should tell audit committees if any issues raised in PCAOB reports generally might apply to that company's own financial reporting.

The CAQ alert echoes many of the same suggestions raised by the PCAOB when it offered guidance to audit committees in August. The PCOAB published its alert directed at audit committees, even though it has no jurisdiction over audit committees, to answer claims it heard from committee members that auditors often minimize the significance of inspection findings. The PCAOB heard the concerns as it gathered feedback on its early ideas to promote greater auditor independence by developing a system of term limits for auditors.

The CAQ will host a webcast on communication between auditors and audit committees on Oct. 24.

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