The new standard could level the playing field between CFOs and other less-informed members of corporate audit committees, an audit regulator says.
« The Public Company Accounting Oversight Board (PCAOB) today approved a standard on how to help auditors and audit committees communicate better. While Auditing Standard No. 16 (dubbed Communication with Audit Committees) still has to be approved by the Securities and Exchange Commission, the formal adoption of the rule shows the importance the PCAOB is placing on the need for better communication to improve the transparency and integrity of financial reporting by U.S. companies.
Requiring better audit communication is expected to help smooth out any wrinkles that might arise in advance of a company’s financial-reporting cycle. It is to the benefit of a company and its audit committee to hear upfront about concerns that might spring up over applying new accounting standards or about any unusual financial transactions that are outside of the normal course of business rather than when a company is about to release its earnings, according to Martin Baumann, chief auditor and director of professional standards at the PCAOB. “It’s really putting them [companies] on notice that there’s a risk around financial reporting that we see emerging here.”
Under the new standard, an auditor would also be required to ask a company what plans it has to mitigate a particular issue before formulating his or her conclusion, which would mark a change from current practice. “This significantly puts the audit committee into the equation and consideration of what the auditor is doing,” adds Baumann, who spent three years as CFO of Freddie Mac before he joined the auditor-oversight board. »