The Public Company Accounting Oversight Board has issued for comment a proposal to adopt a new auditing standard that gives auditors some new requirements about what and how they should communicate with audit committees.

The standard would require auditors to come to a mutual understanding of the terms of an audit engagement with the audit committee and to document those terms in an engagement letter. It also would establish requirements for auditors to communicate to the audit committee an overview of the audit strategy, including a discussion of the significant risks and the extent to which the auditor will rely on the internal audit function or other audit firms.

Auditors also would be required to apprise audit committees of the critical accounting policies, practice, and estimates that might come into play and to provide their assessment of the company’s viability as a going concern. Auditors would also be required to discuss with audit committees their take on how adequately the auditor and audit committee are communicating.

The standard would replace two existing interim standards, AU Section 380, Communication with Audit Committees, and AU Section 310, Appointment of the Independent Auditor. It also would amend a number of other interim standards to assure they are consistent with the new standard.

In a prepared statement, PCAOB member Steven Harris said the proposed standard follows on the requirements of the Sarbanes-Oxley Act for the auditor and the audit committee to work together independent of management. “In short, the proposed standard updates and enhances existing auditor communication requirements to ensure that the audit committee has access to the critical knowledge an auditor gains during the course of the audit,” he said.

Daniel Goelzer, acting chairman of the PCAOB, said the standard would expand and clarify the rules that govern the auditor’s responsibilities in communicating with the audit committee. “The new framework is intended to implement the Sarbanes-Oxley Act’s objectives by enhancing and making more concrete the substance of these communications,” he said, also through a prepared statement.

The proposal is open for public comment through May 28.

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