DOCSLIB.ORG

2020 Conversations with Audit Committee Chairs

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
2020 Conversations with Audit Committee Chairs 2020 Conversations with Audit Committee Chairs February 2021 This document represents the views of PCAOB staff and not necessarily those of the Board. It is not a rule, policy, or statement of the Board. The PCAOB does not set standards for, or provide authoritative guidance on, audit committee conduct. 2020 Conversations with Audit Committee Chairs This document summarizes the feedback we OVERVIEW received in each topic area. Please note that the PCAOB does not necessarily endorse what The Public Company Accounting Oversight we heard from audit committee chairs. Rather, Board (PCAOB) views engaged and informed we present this summary in an effort to provide audit committees as effective force multipliers greater transparency into these important in promoting audit quality and believes that conversations. the PCAOB and audit committees jointly benefit from our ongoing dialogue. Continuing with the expanded engagement we launched in 2019, we again reached out to the audit 2020 Inspections committee chairs of most of the U.S. public companies whose audits we inspected during by the Numbers 2020 and offered them the opportunity to speak with our inspection teams. In total, we Number of audit spoke to nearly 300 audit committee chairs. firms reviewed by our inspectors, In addition to the effects of the COVID-19 219 which includes: pandemic on the audit, we discussed three core topics during our conversations: y 11 U.S. firms with more than 100 issuer audit clients; y The auditor and communications with the audit committee; y 103 U.S. firms with 100 or fewer issuer audit clients; y New auditing and accounting standards; and y 66 U.S. firms that audit broker- y Emerging technologies. dealers; and y 39 Non-U.S. firms in over 19 jurisdictions. COVID-19 An overarching theme of our calls in 2020 was how the COVID-19 pandemic created Expanding our unprecedented challenges for auditors, audit committees, and public companies. Audit Committee We previously reported on that topic in Engagement Conversations with Audit Committee Chairs: COVID-19 and the Audit. Percentage of We also published two other documents— audit committee COVID-19: Reminders for Audits Nearing chairs that we Completion and Staff Observations 75% spoke to in 2020 and Reminders during the COVID-19 with whom we had not previously directly Pandemic—that include reminders engaged. For audit committee chairs of about certain auditor responsibilities, public companies not audited by one of notwithstanding the challenges that may the four largest public accounting firms, exist related to COVID-19. this percentage was 90%. February 2021 | 2 2020 Conversations with Audit Committee Chairs THE AUDITOR AND y Independence communications; y Guidance around auditing of certain COMMUNICATIONS controls for third-party vendors; WITH THE AUDIT y “Over-auditing” and/or “over- COMMITTEE documentation;” and y Increased visibility into and discussion We asked audit committee chairs a number around fee changes. of questions related to their audit firm and ongoing communications between the audit Reviewing Inspection Reports committee and their auditors. with Auditors Communications We asked audit committee chairs if they Audit committee chairs frequently cited reviewed PCAOB inspection reports with their communications with their auditors—both auditors. While there were varying degrees and verbal and written—as extremely important to types of reviews, audit committee chairs who audit quality and their overall relationship with did review the reports and had conversations their auditors. Most audit committee chairs with their auditors about them generally found commended their auditors’ communications, the exercise to be useful. Audit committee commonly sharing that they were thorough, chairs continued to cite the lag between when timely, and at the right level of detail and frequency. Several also highlighted their appreciation for dashboards provided by their New Format for PCAOB auditors that highlighted real-time data on audit progress and other topics. Inspection Reports Auditor Strengths and Areas for In 2020, we began issuing inspection reports in a redesigned format, the first Improvement substantial change to the inspection report Audit committee chairs noted that their in more than 15 years. We streamlined the auditors performed well in areas such as content to enhance readability and used assigning resources with expertise on complex charts and graphs to make the information accounting issues, consulting their national more digestible and accessible. To offices as appropriate, offering practical enhance transparency, we also included approaches to problem-solving (as opposed information not previously communicated to being highly theoretical), and providing in inspection reports. continuity on audit teams. The response from audit committee Innovation and partner rotation were areas chairs to the new format has been where some audit committee chairs praised overwhelmingly positive, with many their auditors, but others flagged them as areas noting that the reports are more concise, needing improvement. Other potential areas of better organized, easier to read, and improvement that were identified included: generally more useful. We encourage audit committee members to read our Guide y Managing global audit operations; to Reading the PCAOB’s New Inspection Report and to share your feedback. y Helping more junior audit team members learn the company’s business; February 2021 | 3 2020 Conversations with Audit Committee Chairs inspections occur and when inspection reports are issued as an area of concern. Reducing that lag remains an important strategic priority for Audit Committee the PCAOB. Perspectives: What’s Awareness of Auditors’ Initiatives Working Well to Prevent Audit Deficiencies Asking the external auditors to We sought to gauge the understanding of provide constructive feedback or audit committee chairs about the activities tangible recommendations on or initiatives that they observed audit firms areas where the company’s internal undertaking to prevent audit deficiencies, audit team or financial reporting which is a significant area of strategic focus for systems could improve. the PCAOB. Their responses to our questions largely centered on: Asking the audit firm if they have y Audit firms’ use of emerging technologies; training or resources for new audit committee members or a newly y Audit firms’ emphasis on tone at the top; appointed chair. y The role of robust training as a guard against deficiencies; and Regularly assessing the y The importance of auditors staying focused engagement team’s performance. on implementation of new accounting and auditing standards. Asking the auditors to review the PCAOB inspection report Assessing Auditor Performance with the audit committee and Finally, we inquired about audit committees’ to discuss any initiatives the firm assessments of their auditors. Many audit has implemented to address committee chairs noted that they routinely deficiencies described in the assess the performance of their auditors, often inspection report. with an emphasis on the lead engagement partner and the engagement team’s Reviewing year-over-year PCAOB communications and timeliness. While some inspection report trends within committees do it on an annual basis or in and between audit firms. conjunction with the decision to include the ratification of the auditors in the annual proxy, many shared that they are conducting such assessments more regularly—either quarterly or in real time should the need for feedback arise. February 2021 | 4 2020 Conversations with Audit Committee Chairs NEW AUDITING Audit Committee AND ACCOUNTING Perspectives: What’s STANDARDS Working Well The next area of focus in our conversations was the implementation of new auditing When reviewing the audit plan, and accounting standards. Audit committee asking the auditors if there will be chairs oversaw implementation of a variety any significant changes to their of new accounting standards during the audit approach for the year in light period covered by our 2020 inspections. New of new or revised accounting or accounting standards for revenue recognition, auditing standards. lease accounting, and where applicable, preparing for implementation of current Asking the auditors to provide expected credit losses (CECL), stood out as the audit committee early notice particularly challenging and time consuming and frequent updates when new for many audit committee chairs. standards are being implemented. Implementation of the critical audit matter (CAM) requirements by auditors, by contrast, Setting aside time for educational was generally viewed as smooth, with audit sessions or deep dives where committee chairs noting that dry runs and auditors can explain and answer other early preparation with their auditors led questions about how new audit to few surprises. These views were consistent requirements may impact the with what we have heard elsewhere from audit audit. Requesting that auditors Accounting Estimates communicate their approach and Use of Specialists to auditing the implementation of new accounting standards The PCAOB’s new requirements related (that are coordinated with to auditing accounting estimates, management’s timelines) and including fair value measurements, and implementation of new auditing using the work of specialists took effect standards. for audits of fiscal years ending on or after December 15, 2020. Discussing with the auditors In our 2020 conversations with
Load more

Recommended publications
  • Audit Committees and Auditor Independence Brochure
    relationships with the company, its officers, directors or significant Change of Independent Auditors shareholders. Thus, audit committees should consider whether the company The auditor generally must be independent for has implemented processes that identify the entire engagement period and the period such prohibited relationships. covered by the financial statements being audited. Once this relationship is terminated, z Certain Financial Relationships. Audit there is no continuing requirement for the auditor committees should be aware that certain to remain independent. The auditor may financial relationships between the generally re-issue its former opinions on the company and the independent auditor company’s financial statements. However, if a are prohibited. These include creditor/ restatement of the financial statements becomes debtor relationships, banking, broker- necessary, the auditor must be independent to dealer, futures commission merchant audit the restatement adjustments and re-issue its accounts, insurance products and opinion. Further, if the Board is contemplating or interests in investment companies. plans a change in auditors, the audit committee Communications Between the Audit must consider whether the prospective firm will be independent during the audit engagement period. Committee and the Independent Auditor That is, the prospective firm must cease all Independence Standards Board Standard No. 1 prohibited services and/or sever all prohibited AUDIT COMMITTEES AND requires that the auditor disclose to the audit relationships with the issuer prior to the beginning AUDITOR INDEPENDENCE committee in writing all relationships between of the audit engagement period. Therefore, the the audit firm and the company that may audit committee should consider these issues reasonably be thought to bear on the audit firm’s before hiring a predecessor auditor or a independence.
    [Show full text]
  • The Role of Internal Auditing in Enterprise-Wide Risk Management
    IIA POSITION PAPER: THE ROLE OF INTERNAL AUDITING IN ENTERPRISE-WIDE RISK MANAGEMENT Issued: January 2009 ERM PP Revised: Page 1 of 8 Introduction The importance to strong corporate governance of managing risk has been increasingly acknowledged. Organizations are under pressure to identify all the business risks they face; social, ethical and environmental as well as financial and operational, and to explain how they manage them to an acceptable level. Meanwhile, the use of enterprise-wide risk management frameworks has expanded, as organizations recognize their advantages over less coordinated approaches to risk management. Internal auditing, in both its assurance and its consulting roles, contributes to the management of risk in a variety of ways. What is Enterprise-wide Risk Management? People undertake risk management activities to identify, assess, manage, and control all kinds of events or situations. These can range from single projects or narrowly defined types of risk, e.g. market risk, to the threats and opportunities facing the organization as a whole. The principles presented in this paper can be used to guide the involvement of internal auditing in all forms of risk management but we are particularly interested in enterprise-wide risk management because this is likely to improve an organization’s governance processes. Enterprise-wide risk management (ERM) is a structured, consistent and continuous process across the whole organization for identifying, assessing, deciding on responses to and reporting on opportunities and threats that affect the achievement of its objectives. Responsibility for ERM The board has overall responsibility for ensuring that risks are managed. In practice, the board will delegate the operation of the risk management framework to the management team, who will be responsible for completing the activities below.
    [Show full text]
  • Audit Committee Charter & Checklist
    Audit Committee Charter & Checklist GP Natural Resource Partners LLC Purpose The Audit Committee (the "Committee") is appointed by the Board of Directors of GP Natural Resource Partners LLC (the "Company") to serve as an independent and objective party to: • oversee the quality and integrity of the financial statements, reports and other financial information of Natural Resource Partners L.P. (the "Partnership") that the Partnership provides to any governmental body or to the public; • oversee the Partnership's compliance with legal and regulatory requirements; • oversee the independent public accountant's qualifications and independence; • oversee the performance of the independent public accountants; • oversee the performance of the internal audit functions of the Partnership and the Company; • oversee the Partnership's systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board of Directors have established; • prepare on an annual basis a Report of the Audit Committee for inclusion in the Partnership's annual report on Form 10-K; • provide an open avenue of communication among the independent public accountants, financial and senior management, the personnel responsible for internal audit functions, and the Board of Directors, always emphasizing that the independent public accountants are accountable to the Committee; and • perform such other duties as are directed by the Board of Directors and report regularly to the Board of Directors. Consistent with this purpose, the Committee should encourage continuous improvement of, and should foster adherence to, the Partnership's policies, procedures and practices at all levels. Committee Membership The Committee shall be comprised of three or more Directors, as recommended by the Compensation, Nominating and Governance Committee and approved by the Board of Directors.
    [Show full text]
  • Brookfield Business Partners Limited Audit Committee Charter
    BROOKFIELD BUSINESS PARTNERS LIMITED AUDIT COMMITTEE CHARTER A committee of the board of directors (the “Board”) of Brookfield Business Partners Limited (the “BBU General Partner”), the general partner of Brookfield Business Partners LP (the “Partnership”), to be known as the Audit Committee (the “Committee”) shall have the following terms of reference: MEMBERSHIP AND CHAIR Annually the Board shall appoint three or more directors (the “Members” and each a “Member”) to serve on the committee for the upcoming year or until the Member ceases to be a director, resigns or is replaced, whichever occurs first. The Members will be selected by the Board on the recommendation of the Governance and Nominating Committee of the BBU General Partner (the “Governance and Nominating Committee”). Any Member may be removed, with or without cause, from office or replaced at any time by the Board. All Members will be Independent directors (as defined below). In addition, every Member will be Financially Literate (as defined below). Members may not serve on more than two other public company audit committees, except with the prior approval of the Chair of the Board. Not more than fifty percent of the Members may be residents of any one jurisdiction (other than Bermuda and any other jurisdiction designated by the Board from time to time). The Board shall appoint one Member as the chair of the Committee (the “Chair”). If the Board fails to appoint a Chair, the Members of the Committee shall elect a Chair by majority vote to serve at the pleasure of the majority. If the Chair is absent from a meeting, the Members shall select a Member from those in attendance to act as Chair of the meeting.
    [Show full text]
  • The Audit Committee's Role in Control and Management of Risk
    Mauritius Audit Committee Forum Position Paper 3 The Audit Committee’s Role in Control and Management of Risk December 2015 2 | Mauritius Audit Committee Forum About the Mauritius Audit Committee Forum Recognising the importance of Audit Committees as part of good Corporate Governance, the Mauritius Institute of Directors (MIoD) and KPMG have set up the Mauritius Audit Committee Forum (the Forum) in order to help Audit Committees in Mauritius, in both the public and the private sectors, improve their effectiveness. The Position Paper 3 deals with the Audit Committee's role in control and management of risk. The purpose of the Forum is to serve Audit Committee members and help them adapt to their changing role. Historically, Audit Committees have largely been left on their own to keep pace with rapidly changing information related to governance, risk management, audit issues, accounting, financial reporting, current issues, future changes and international developments. The Forum provides guidance for Audit Committees based on the latest legislative and regulatory requirements. It also highlights best practice guidance to enable Audit Committee members to carry out their responsibilities effectively. To this end, it provides a valuable source of information to Audit Committee members and acts as a resource to which they can turn for information or to share knowledge. The Forum’s primary objective is thus to communicate with Audit Committee members and enhance their awareness and ability to implement effective Audit Committee processes. Position Paper series The Position Papers, produced periodically by the Mauritius Audit Committee Forum, aim to provide Board directors and specifically Audit Committee members with basic best practice guidance notes in running an effective Audit Committee.
    [Show full text]
  • The Role of the Audit Committee Chair
    The role of the audit committee chair Audit Committee Institute Part of the KPMG Board Leadership Centre The importance of the audit committee chair’s leadership in setting the committee’s tone, work style, and agenda is vital to the committee’s effectiveness. In our experience, the most effective audit committee chairs are fully engaged – recognising that the position may require their attention at any time, and often beyond regularly scheduled meetings. They understand the culture of the organisation; they set clear expectations for committee members; they understand, and hold to account, both management and auditors; and they ensure that the right resources are being employed to support quality financial reporting. To provide effective leadership, the audit committee Audit committee chairs often set aside “white chair must have a clear understanding of the space” at the beginning of each meeting for the committee’s duties and responsibilities; be able to committee members to have one last look at the commit the necessary time (which will vary depending agenda (including time allocated to each agenda item) on the size, complexity and circumstances of the after they have had the opportunity to review the pre- business); be readily available on urgent matters and in meeting materials. times of crisis; and have the requisite business, financial, communication, and leadership skills. Many audit committee chairs also set aside time at each meeting for the audit committee to take a deep Setting the agenda dive into an important area of risk, accounting policy, judgement estimate or the company’s use of non- The audit committee chair plays a critical role in GAAP measures.
    [Show full text]
  • Sample Audit Committee Charter Center for April 2018 Board Effectiveness Sample Audit Committee Charter
    Sample audit committee charter Center for April 2018 Board Effectiveness Sample audit committee charter Sample audit committee charter This sample audit committee charter is based on observations of selected companies and the requirements of the SEC, the NYSE, and NASDAQ. The information presented can and will change; we are under no obligation to update such information.1 This template is designed for US public companies; exceptions to the requirements noted below may apply for certain issuers, including investment companies, small-business issuers, and foreign private issuers. Many of the items presented here are not applicable to voluntary filers. All companies should consult with legal counsel regarding the applicability and implementation of the various requirements identified. Audit committee of the board of directors—charter I. Purpose and authority The audit committee is established by and among the board of directors for the primary purpose of assisting the board in: • Overseeing the integrity of the company’s financial statements [NYSE Corporate Governance Rule 303A.07(b)(i)(A)] and the company’s accounting and financial reporting processes and financial statement audits [NASDAQ Corporate Governance Rule 5605(c)(1)(C)] • Overseeing the company’s compliance with legal and regulatory requirements [NYSE Corporate Governance Rule 303A.07(b)(i)(A)] • Overseeing the registered public accounting firm’s (independent auditor’s) qualifications and independence [NYSE Corporate Governance Rule 303A.07(b)(i)(A) and NASDAQ Corporate Governance Rule 5605(c)(1)(B)] • Overseeing the performance of the company’s independent auditor and internal audit function [NYSE Corporate Governance Rule 303A.07(b)(i)(A)] • Overseeing the company’s systems of disclosure controls and procedures • Overseeing the company’s internal controls over financial reporting • Overseeing the company’s compliance with ethical standards adopted by the company.
    [Show full text]
  • Model Audit Committee Charter
    Model Audit Committee Charter PURPOSE To assist the board of directors in fulfilling its oversight responsibilities for the financial reporting process, the system of internal control, the audit process, and the company's process for monitoring compliance with laws and regulations and the code of conduct. AUTHORITY The audit committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to: Appoint, compensate, and oversee the work of any registered public accounting firm employed by the organization. Resolve any disagreements between management and the auditor regarding financial reporting. Pre-approve all auditing and non-audit services. Retain independent counsel, accountants, or others to advise the committee or assist in the conduct of an investigation. Seek any information it requires from employees-all of whom are directed to cooperate with the committee's requests-or external parties. Meet with company officers, external auditors, or outside counsel, as necessary. COMPOSITION The audit committee will consist of at least three and no more than six members of the board of directors. The board or its nominating committee will appoint committee members and the committee chair. Each committee member will be both independent and financially literate. At least one member shall be designated as the "financial expert," as defined by applicable legislation and regulation. MEETINGS The committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. All committee members are expected to attend each meeting, in person or via tele- or video-conference. The committee will invite members of management, auditors or others to attend meetings and provide pertinent information, as necessary.
    [Show full text]
  • Audit Committee Charter
    AUDIT COMMITTEE CHARTER I. PURPOSE The primary functions of the Audit Committee are to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing: the financial reports and other financial information provided by the Partnership to any governmental body or the public; the Partnership’s systems of internal controls regarding financial, accounting, legal compliance and ethics that management and the Board have established; and the Partnership’s auditing, accounting and financial reporting processes generally. Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to the Partnership’s policies, procedures and practices at all levels. The Audit Committee’s primary duties and responsibilities are to: • Serve as an independent and objective party to monitor the Partnership’s financial reporting process and internal controls system. • Select, monitor, evaluate and, where appropriate, replace the independent auditors (which shall be a registered public accounting firm as defined under the Sarbanes-Oxley Act of 2002). • Oversee the Partnership’s internal auditing department. • Provide an open avenue of communication among the independent auditors, financial and senior management, the internal auditing department and the Board of Directors. • Monitor compliance by the Partnership with legal and regulatory requirements with respect to the foregoing. The Audit Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. The Audit Committee is responsible for the duties set forth in this Charter but is not responsible for either the preparation of the financial statements or the auditing of the financial statements. Management has the responsibility for preparing the financial statements and implementing internal controls.
    [Show full text]
  • Audit Committee Charter
    CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF TRUIST FINANCIAL CORPORATION AND TRUIST BANK Purpose The Audit Committee (the “Committee”) is a joint committee appointed by the Boards of Directors (collectively and/or individually for the respective corporation, as the case may be, the “Board”) of Truist Financial Corporation and Truist Bank (collectively and/or individually herein, as the case may be, the “Corporation”) to assist the Board in monitoring: (i) the integrity of the financial statements of the Corporation; (ii) the compliance by the Corporation with legal and regulatory requirements; (iii) the independent auditor’s qualifications and independence; (iv) the Corporation’s internal controls and procedures; and (v) the performance of the Corporation’s internal audit function and the Corporation’s independent auditors. The Committee shall also prepare the disclosure required by Item 407(d)(3)(i) of Regulation S-K. While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Corporation’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor. Committee Membership The Committee members and its Chair are appointed annually by the Board, on the recommendation of the Nominating and Governance Committee of the Corporation, and may
    [Show full text]
  • Audit Committee Charter Amended and Restated September 15, 2020
    PSEG AUDIT COMMITTEE CHARTER AMENDED AND RESTATED SEPTEMBER 15, 2020 Committee Role and Organization The Audit Committee (the “Audit Committee” or the “Committee”) of the Board of Directors (the “Board”) of Public Service Enterprise Group Incorporated (the “Corporation”) assists the Board in fulfilling its responsibility for oversight of the integrity of the Corporation’s financial statements, and the quality and integrity of the accounting, auditing and financial reporting practices of the Corporation. The Audit Committee’s responsibilities also include: assisting the Board in its oversight of the Corporation’s compliance with legal and regulatory requirements; assessing the independence and qualifications of the independent auditor; and assessing the performance of the independent auditor, the internal audit function and the internal ethics and compliance function. The Committee shall have open and free access to all information, may require any officer or employee of the Corporation or its subsidiaries to furnish it with information, documents or reports that it deems necessary or desirable to carrying out its business, and is empowered to investigate any matter involving the Corporation or its subsidiaries. The Committee may retain appropriate resources to assist in the discharge of its responsibilities. The Audit Committee shall consist of three or more independent Directors who are in compliance with the financial literacy requirements of the New York Stock Exchange, including at least one member with accounting or related financial management expertise, and at least one member who is an audit committee financial expert in accordance with the Securities and Exchange Commission (SEC) requirements. Each member shall be free of any relationship that, in the opinion of the Board, would interfere with his or her individual exercise of independent judgment, or that would render such member not to be independent under applicable law.
    [Show full text]
  • AUDIT COMMITTEE CHARTER of LAZARD LTD Purpose the Audit
    AUDIT COMMITTEE CHARTER OF LAZARD LTD Purpose The Audit Committee is appointed by the Board of Directors (the “Board”) to assist the Board in monitoring (1) the integrity of the financial statements of Lazard Ltd (the “Company”), (2) the independent auditor’s qualifications and independence, (3) the performance of the Company’s internal audit function and independent auditors, and (4) the compliance by the Company with legal and regulatory requirements. The Audit Committee shall prepare the report required by the rules of the Securities and Ex- change Commission (the “Commission”) to be included in the Company’s annual proxy state- ment. Committee Membership One member of the Audit Committee shall be appointed as its Chairperson by the Board. The members of the Audit Committee shall meet the independence and experience requirements of the New York Stock Exchange, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations of the Commission. At least one member of the Audit Committee shall be an “audit committee financial expert” as defined by the Commission. Audit Committee members shall not simultaneously serve on the audit committees of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on the Company’s Audit Committee. The members of the Audit Committee shall be appointed by the Board on the recommendation of the Nominating & Governance Committee. Audit Committee members may be replaced by the Board. Meetings The Audit Committee shall meet as often as it determines, but not less frequently than quarterly.
    [Show full text]