The U.S. Securities and Exchange Commission (SEC) has approved the Public Company Accounting Oversight Board's (PCAOB) Accounting Standard 16 (AS 1 6) on communications between auditors and audit committees. PCAOB chairman James R. Doty praised the board's work, saying that "open lines of communication between auditors and audit committees improve the quality of audits, and the final standard enhances the quality and relevance of those communications."
Martin F. Bauman, PCAOB chief auditor and director of professional standards, agreed that AS 16 will result in better audits.
"[The standard] emphasizes effective two-way communication on matters of PCAOB great importance to James the audit and the financial statements, such as significant risks, critical accounting estimates, difficult or contentious matters, significant unusual transactions and going concern," said Bauman.
The standard supersedes PCAOB AU Sections 310 and 380, retaining its communication requirements, enhancing some and adding others.
Previous PCAOB standards were adopted from standards written by the American Institute of Certified Public Accountants (AICPA) before the board was established by the Sarbanes-Oxley Act of 2002. Those standards, therefore, did not include the requirement that an understanding of the terms of an audit be established in writing in order to confirm that the audit committee agrees. The understanding must deal with the audit strategy, the timing of the audit and any significant risks identified during the auditor's risk assessment procedures.
The standard also...