Audit Committee Reports in Proxy Statements

By Cydney Posner

As you know, the audit committee report in the proxy statement  includes a statement to the effect the Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1.  AU section 380), as adopted by the Public Company Accounting Oversight Board ("PCAOB") in Rule 3200T. The report typically refers to the particular auditing standard under which the auditor-audit committee communications for the prior year's audit took place.  Auditing Standard No. 16, Communications with Audit Committees, as adopted by the PCAOB, has an effective date for public company audits of fiscal periods beginning after December 15, 2012.   (See News Brief dated 12/21/12.)   As a result, per The Corporate Counsel,  it appeared that  AS 16 would not be referenced in the audit committee report until next year.  However, The Corporate Counsel now reports that, in many cases, the Big Four accounting firms have "early adopted" AS 16, and, accordingly, the "communications between the audit committee and auditors during last year's audits (before the effective date of AS 16) should be described as having taken place pursuant to AS 16, rather than under SAS 61. If it can be confirmed that there has indeed been early adoption for an issuer's 2012 audit (which makes sense given that most of the provisions in AS 16 are additive to matters already required to be communicated under SAS 61), then it appears that the audit committee report should indeed reference AS 16 this proxy season." The Corporate Counsel suggests, as an alternative, that some issuers may want to use a more generic reference during the transition period, such as "communications pursuant to applicable auditing standards."

For those of you now in the midst of doing proxies, it would be advisable to verify which auditing standard was applied for the company's auditor communications with the audit committee and reflect that standard in the audit committee report. 

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