Audit Committee Resource: 2021 Inspections Outlook

Audit Committee Resource 2021 Inspections Outlook

April 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. Audit Committee Resource: 2021 Inspections Outlook

The Public Company Accounting Oversight yy How has the auditor considered the relevant Board’s (PCAOB) Staff Outlook for 2021 Inspections, economic factors that could affect the public provides an overview of the principal changes we company’s ability to continue as a going are making to inspections in 2021 and highlights concern? important areas of planned inspection focus, including how we are responding to the financial oo If applicable, how has the auditor evaluated reporting and audit risks posed by the COVID-19 management’s plans to alleviate substantial pandemic. We also discuss how we intend to doubt about the public company’s ability enhance the unpredictability of our inspections to continue as a going concern, and the including enhancing our selection of non- related financial statement disclosures? traditional financial statement areas for review. yy How has the auditor assessed risks of material While audit committees of inspected public misstatement related to the public company’s companies may use the information in technology systems, including relevant cyber that publication, in addition to required threats, and how has it addressed those communications from the auditors, this potential risks? document suggests certain questions that audit committees—at their discretion—could use to FIRMS’ QUALITY further engage with their auditors. CONTROL SYSTEMS AUDITOR’S RISK yy Has the firm changed any aspects of its quality control system to account for the COVID-19 ASSESSMENTS pandemic and related economic uncertainty yy How have the pandemic and associated (e.g., leadership communications, consultation economic factors influenced the auditor’s risk requirements, and client acceptance and assessments for the current year’s audit? continuance procedures)? If so, how? yy How does the firm’s quality control system promote a culture that emphasizes audit Audit Committee quality? Outreach HOW FIRMS COMPLY We remain committed to seeking views and feedback from audit committees on how to WITH AUDITOR further drive improvements in audit quality and will continue these activities. An integral part of INDEPENDENCE this engagement is our interaction with audit REQUIREMENTS committees during the inspection process. Between 2019 and 2020, we had one-on-one yy How does the firm monitor compliance conversations with nearly 700 audit committee with Securities and Exchange Commission chairs as part of our process, and in 2021, we will and PCAOB independence requirements, continue to invite the audit committee chairs including compliance with obtaining pre- of most of the U.S. public companies whose approvals for non-audit services? audits we inspect to speak with us. yy How can the audit committee and To learn more about what we have heard management assist the auditor in complying from audit committee chairs, please visit our with independence requirements? Information for Audit Committees web page.

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FRAUD PROCEDURES We Want to Hear yy How did the auditor identify and assess the risks of material misstatement due to fraud, from You and how were appropriate audit responses The PCAOB strives to improve our designed and implemented? external communications and provide yy Did the COVID-19 pandemic influence the information that is timely, relevant, and nature, timing or extent of procedures the accessible. We invite you to share your auditor performed to address the risk of views on this document by filling outour material misstatement due to fraud? If so, survey, which should take no more than how? two minutes to complete.

CRITICAL AUDIT yy To what extent did the public company MATTERS engage specialists to be involved in the preparation of financial statements? yy What items, if any, were considered “close y calls” but ultimately not identified as a CAM y Did the auditor involve specialists? If so, in by the auditor? Why were these items not what areas, how were the specialists used, determined to be CAMs? and did the use of specialists change in the current year? yy Did the COVID-19 pandemic affect the y auditor’s determination as to whether y Did the auditor have any particular challenges matters were identified as a CAM (i.e., involved in applying any new requirements at the especially challenging, subjective or complex public company? judgment)? If so, how? SUPERVISION OF HOW FIRMS IMPLEMENT AUDITS INVOLVING NEW AUDITING OTHER AUDITORS

STANDARDS yy Did restrictions on travel and in-person yy Was the audit of the public company’s interactions in 2020 create challenges for estimates affected by the PCAOB’s new supervision and review of work performed requirements? by other auditors? If so, how were these challenges addressed?

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