Last week, the Public Company Accounting Oversight Board shared additional insights regarding its latest conversations with audit committee chairs - Conversations with Audit Committee Chairs: COVID-19 and the Audit (the "Summary"). The update supplements the highlights shared regarding conversations that the PCAOB held in 2019 with nearly 400 audit committee chairs of U.S. issuers whose audits were inspected by the PCAOB. (See our December 27, 2019 post). The conversations in 2020 have continued as part of the PCAOB's commitment to proactive stakeholder engagement as a way to improve transparency and accountability.
Predictably, the PCAOB's recent discussions have involved a number of questions about the effects of COVID-19 on financial reporting and auditing. Consistent with broader market trends, the level and nature of the impact of COVID-19 varies across different industries and issuers. Highlights from the Summary include:
- Increased risks associated with remote work. The most common theme among audit committee chairs that recently met with the PCAOB dealt with risks regarding remote work arrangements, with most audit committee chairs describing the rapid shift to remote work arrangements as "effective." This was equally applicable to the company's employees and outside auditors. Given the greater reliance on cloud computing in remote work environments, a number of audit committee chairs noted that they have been discussing cyber-related controls within the scope of the audit and increasing the focus on the controls' effectiveness. Based on insights shared from audit committee chairs, the Summary includes a list of example questions that audit committees may want to discuss with their auditors regarding risks related to remote work arrangements.
- Increased audit committee communications with the auditor. The Summary notes that a majority of audit committee chairs cited COVID-19 as a basis for more frequent communication between auditors and audit committees. Among the topics audit committees may want to discuss with auditors, in light of COVID-19, the Summary lists a handful of considerations, including challenges to completion of the audit, the cadence of communication with auditors and management, changes in the audit plan and potential disclosure changes resulting from COVID-19. The audit committee chairs reported three primary forms of communication that they have found useful:
- Discussions regarding trends auditors are seeing across their client base, particularly those pertaining to industry peers;
- Presentations about audit areas that may warrant increased attention due to the effects of COVID-19, as well as how the auditor plans to approach those areas; and
- Audit firm resources and webinars with industry-specific content.
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