Disturbed by persistent reports that auditors are stonewalling auditing committees about regulatory inspection findings, the Public Company Accounting Oversight Board is offering audit committees some advice on how to get more information out of their auditors.

The PCAOB published a 26-page primer on its inspection process targeted at audit committees to help them understand what they can learn about their own audit firm as a result of the board's inspection process. The release explains how the inspection process works, what inspection reports mean, and how audit committees can get more information out of their auditors about inspection findings and their implications. The release is meant to help audit committees learn more about the nonpublic aspects of inspections, where the PCAOB is prohibited by law from discussing inspection findings either in their reports or with issuers directly.

PCAOB Chairman James Doty told members of the media that the board is aware that auditors often dismiss the significance of inspection findings, explaining them as documentation problems, differences of professional judgments, or matters that the firms have already addressed and remediated. “The PCAOB would disagree with those characterizations as report findings are serious matters,” he said. The board says in its release that law does not prohibit inspected firms from disclosing nonpublic inspection information, and it cautions audit committees to be skeptical if its auditor asserts otherwise. The board says auditors often are reluctant to disclose nonpublic portions of their inspection findings for fear it might waive legal privilege that could become important in any future litigation.

To arm audit committees with the right questions to draw out more information from their auditors, the PCAOB tells audit committee members they should ask their auditors some specific questions, including whether the firm has learned through inspections that something in the company's own financial statements is not sufficiently supported or that something else has come to light that would reflect negatively on the firm's performance. The board tells audit committees to ask if inspectors raised questions about the fairness of financial statements, the adequacy of disclosures, or the auditor's independence.

Audit committees also should ask their auditors if their own audit is described anywhere in the public portion of the report, and whether issues similar to the company's own audit arose in other inspection findings. If there are similar themes from other audit findings, audit committees should ask how issues have been resolved and how the firm can assure the same issues aren't a concern with respect to its own audit. Even further, audit committees should press auditors to explain how concerns raised in other inspection findings are being addressed.

“Whether an audit committee's own company audit is being reviewed as part of an inspection, or whether it's another company within the same industry, PCAOB inspection reports provide insight into areas of risk and audit quality that are of concern to all audit committees,” said Doty. “The inspection reports we issue are a resource tool, the only place where they can find independent evaluations of their auditors.”

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