New Changes to PCAOB and What They Mean

Addison Group

The 2019 Staff Inspections Outlook published by the Public Company Accounting Oversight Board indicates that there are some interesting changes on the horizon. Of particular interest is that the PCAOB will allow audit committee chairs of companies who may be audited to participate in discussions with inspection staff.

While the PCAOB’s intent is to provide a more thorough explanation of the audit, and perhaps create more transparency, the reality may be a bit more complex than that. Companies should take into account the potential impacts of the discussions between the audit committee chairs and the inspection staff.

Potential PCAOB Issues

The major concern is that the PCAOB will gain insight into the audit committee process as well as the audit committee obtaining information about PCAOB processes. Some lawyers indicate that a dialogue between the two entities is likely only appropriate if the audit is complete and there were no issues found.

If there are issues found, then having that dialogue occur could potentially cast either party in a negative light. It could potentially influence enforcement activity.

The reality is that while the PCAOB may only have the authority to act against auditors, it is also their practice to share results of the audit with a variety of government agencies who can enforce actions against the issuer.

Options Moving Forward

In order to avoid unexpected interactions with the PCAOB, an issuer should require a timely letter that not only explains the intention of their investigations. Additionally, in the event that discussions between the audit committee and the inspection staff take place, the company should have an attorney on hand.

Specifically, only the attorney should have interaction with the PCAOB so that those discussions stay within a certain boundary. 

Overview

It’s common for the PCAOB to make updates and changes in regards to the specifics of their processes. While there may not be any ill intent behind said changes, it’s important for companies to consider the bigger picture when participating in certain discussions with the PCAOB. An attorney will simply ensure that those discussions are kept within a certain scope and that there are no long-term ramifications that could influence the company long-term.  

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