What Is the Purpose of Having Required Auditor Communications Between

Question

Examlex · Accepted Answer

The Answer is The audit committee helps those charged with governance fulfill their oversight responsibilities with respect to the entity's financial reporting process and the system of internal control. In exercising this oversight responsibility, the audit committee needs information from the external auditors about their experiences assessing internal controls and corporate governance as well as any issues faced during their audit that involve differences with management on financial reporting issues. The audit committee should support the external auditors in their role to ensure the examination of the financial statements proceeds as required under generally accepted auditing and PCAOB standards. The audit committee serves as a check on ethical systems in the organization.
The PCAOB has no jurisdiction over audit committees, so PCAOB Auditing Standard 16, Communications with Audit Committees, has requirements which are aimed strictly at external auditors. The standard requires auditors to:
Establish the understanding of the terms of the audit engagement with the audit committee. The terms of the engagement must be recorded in an engagement letter.
Provide audit committees with an overview of the overall audit strategy, including the timing of the audit, significant risks the auditor identified, and significant changes to the planned audit strategy or risks.
Provide information about others involved in the audit, including internal auditors or other independent public accounting firms.
Give information regarding the company's accounting policies, practices, estimates, and significant unusual transactions.
Provide an evaluation of the quality of the company's financial reporting, including conclusions regarding critical accounting estimates and the company's financial statement presentation; difficult or contentious matters for which the auditor consulted outside the engagement team; the auditor's evaluation of the company's ability to continue as a going concern; and difficulties encountered in performing the audit.
Given the importance of an independent audit in detecting fraud in financial statements, the auditor should discuss with the audit committee relationships that create threats to auditor independence and the related safeguards that have been applied to eliminate or reduce those threats to an acceptable level.
Another important area for communication is about accounting estimates. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from management's current judgments. In communicating with those charged with governance about the process used by management in formulating sensitive estimates, including fair value estimates, and about the basis for the auditor's conclusions regarding the reasonableness of those estimates, the auditor should consider the following:
The nature of significant assumptions
The degree of subjectivity involved in the development of the assumptions, and
The relative materiality of the items being measured to the financial statements as a whole
If the auditor, as a result of the assessment of the risks of material misstatement, has identified such risks due to fraud that have continuing control implications the auditor should consider whether these risks represent significant deficiencies or material weaknesses in the entity's internal controls that should be communicated to management and those charged with governance. The auditor should also consider whether the absence of or deficiencies in controls to prevent, deter, and detect fraud represent significant deficiencies or material weaknesses that should be communicated to management and those charged with governance.

What Is the Purpose of Having Required Auditor Communications Between

Essay

Correct Answer:
Verified

What Is the Purpose of Having Required Auditor Communications Between

Essay

Correct Answer:VerifiedShow Answer

Correct Answer:
Verified