PCAOB issues new guidance for auditors and audit committees

The PCAOB issued new guidance for communications with audit committees. The guidance applies when an auditor has identified a violation of the independence rules.

Applicability

Overview of Staff Guidance of Audit Committee Communications Related to Independence

Independence-related communications with audit committees required under PCAOB Rule 3526(b) when an auditor has identified a violation of independence rules.

Relevant dates

We believe that the PCAOB staff intended that the guidance be implemented for all applicable PCAOB Rule 3526(b) communications occurring on or after May 31, 2019. 

Key impacts

This new guidance for compliance with Rule 3526(b) provides auditors with additional technical assistance needed to foster timely and robust communications between the auditor and the audit committee regarding independence matters.

If the auditor and audit committee separately determine that the auditor’s ability to remain objective and impartial in its judgments has not been impaired, either in fact or from the perspective of a reasonable investor:

• The auditor’s annual independence affirmation (i.e. Rule 3526 communication) is modified to state that the auditor would be independent except for the violation(s) it has identified and discussed with the audit committee; and
• The title of the auditor’s report remains ‘Report of Independent Registered Public Accounting Firm.’

The PCAOB staff guidance, which includes summary observations and questions and answers, has an example of a disclosure that could be provided to the audit committee by the auditor when the auditor has determined that, notwithstanding the violation, it has retained its ability to remain objective and impartial in its judgments.

Report contents

• Why did the PCAOB issue new guidance for Rule 3526(b)?
• How does the new guidance impact audit committees and audit firms?
• Did the PCAOB provide guidance on how to modify the annual independence affirmation? 
• Effective dates and transition