Heads Up — SEC and PCAOB take steps toward enhancing audit committee and auditor disclosures
Recently, the SEC published a concept release on possible revisions to audit committee disclosures, and the PCAOB issued (1) a supplemental request for comment on rules to require disclosures about the audit partner and certain other audit participants and (2) a concept release on audit quality indicators (AQIs). These three releases contemplate expanding disclosures about an audit and how the audit committee oversees the auditor.
SEC’s Concept Release on Audit Committee Disclosures
The responsibilities of audit committees have changed significantly since the SEC’s adoption of audit committee disclosure requirements in 1999. Accordingly, the Commission recently decided to publish a concept release on possible revisions to audit committee disclosures and seek feedback on those revisions, particularly those pertaining to disclosures about audit committees’ oversight of independent auditors. As explained in an SEC press release, “the concept release invites comment on whether Commission disclosure requirements should be refined to provide more insight into the information the audit committee used and the factors it considered in overseeing the independent auditor.”
The SEC’s concept release discusses specific potential changes to audit committee disclosure requirements, including those related to the following:
A. Audit Committee’s Oversight of the Auditor
1. Additional Information Regarding the Communications Between the Audit Committee and the Auditor
2. The Frequency with which the Audit Committee Met with the Auditor
3. Review of and Discussion About the Auditor’s Internal Quality Review and Most Recent PCAOB Inspection Report
4. Whether and How the Audit Committee Assesses, Promotes and Reinforces the Auditor’s Objectivity and Professional Skepticism
B. Audit Committee’s Process for Appointing or Retaining the Auditor
1. How the Audit Committee Assessed the Auditor, Including the Auditor’s Independence, Objectivity and Audit Quality, and the Audit Committee’s Rationale for Selecting or Retaining the Auditor
2. If the Audit Committee Sought Requests for Proposal for the Independent Audit, the Process the Committee Undertook to Seek Such Proposals and the Factors They Considered in Selecting the Auditor
3. The Board of Directors’ Policy, if any, for an Annual Shareholder Vote on the Selection of the Auditor, and the Audit Committee’s Consideration of the Voting Results in its Evaluation and Selection of the Audit Firm
C. Qualifications of the Audit Firm and Certain Members of the Engagement Team Selected By the Audit Committee
1. Disclosures of Certain Individuals on the Engagement Team
2. Audit Committee Input in Selecting the Engagement Partner
3. The Number of Years the Auditor has Audited the Company
4. Other Firms Involved in the Audit
In addition, the concept release explores options for the location of such potential disclosures and solicits feedback on the impact that related rules may have on smaller reporting companies and emerging growth companies (EGCs)
For more information on the SEC’s concept release, including details about submitting comments on the release to the SEC, see Deloitte LLP’s July 2015 Audit Committee Brief.
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