MHM Webinar Slides: Do Your Audit Committee Communications Meet PCAOB Requirements?

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Times they are a changing. Learn about the latest requirements outlined in the PCAOB’s Auditing Standard No. 16 regarding “Communications with Audit Committees” and hear the status of other current rule-making projects of the PCAOB during this free educational opportunity.

This webcast will cover required communications between your auditor and audit committee as well as give an update on proposal-stage literature from the PCAOB. Members of management, auditors of or those involved in oversight and governance of an SEC reporting entity are encouraged to attend this informative session that will provide you with tips for how to comply with the most recent developments.

During this course, hosts from Mayer Hoffman McCann will walk you through the current events and activities being undertaken by the PCAOB including audit committee communications. We will also cover:

Auditing matters and/or proposals under consideration by the PCAOB
Expected timing of proposed standards and implementation of adopted standards
Perspectives offered by the PCAOB on all proposals, if provided

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MHM Webinar Slides: Do Your Audit Committee Communications Meet PCAOB Requirements?

  1. 1. EXECUTIVE EDUCATION SERIES:Do Your Organizations Audit CommitteeCommunications Meet thePCAOB Requirements?Presented by:Rich Howard and Keith PeterkaApril 25, 2013
  2. 2. ‹#› To view this webinar in full screen mode, click on viewoptions in the upper right hand corner. Click the Support tab for technical assistance. If you have a question during the presentation, please usethe Q&A feature at the bottom of your screen.#MHMWebinarBefore We Get Started…
  3. 3. ‹#› This webinar is eligiblefor CPE credit. To receivecredit, you will need toanswer periodic pollingquestions throughout thewebinar. External participants willreceive their CPEcertificate via emailimmediately following thewebinar.#MHMWebinarCPE Credit
  4. 4. Rich Howard, CPAShareholder949.450.4402 | rhoward@cbiz.comRich serves as Vice President of the Board of Directors of MHM and is a memberof both our Executive Committee and Professional Standards Group. He is alsothe Regional Attest Practice Leader for the West Region. Rich leads our SECpractice nationwide and is on the Executive Committee of the Global Audit Groupfor Kreston International, the firm’s international accounting network.‹#›#MHMWebinarToday’s PresentersKeith Peterka, CPAShareholder610.866.2274 | kpeterka@cbiz.comWith more than 20 years of experience in public accounting, Keith performsnational firm responsibilities for IFRS, fair value accounting and auditing, revenuerecognition and business combinations. He is a member of the MHM SECtaskforce in charge of updating the Firm’s SEC Audit Methodology. Additionally,he is a subject matter expert for IFRS, SEC reporting and fair value accounting inMHM’s Professional Standards Group. He also is a member on the IFRSFoundations Small & Medium-sized Entities (SMEs) Implementation Group.
  5. 5. ‹#›#MHMWebinarToday’s Agenda1235Role of Audit CommitteesPCAOB Auditing Standard 16SEC Update
  6. 6. ‹#› SEC has acknowledged the importance of auditcommittees since the 1940s Listing exchange requirements Blue Ribbon Committee on improving theeffectiveness of corporate audit committees Sarbanes Oxley Act of 2002#MHMWebinarRole of Audit Committees: Historical Perspective
  7. 7. ‹#› PCAOB AS 16 requires the auditor to communicatewith the companys audit committee regarding certainmatters related to the conduct of an audit and to obtaincertain information from the audit committee relevantto the audit.#MHMWebinarPCAOB Auditing Standard 16 AS 16 also requires the auditorto establish an understandingof the terms of the auditengagement with the auditcommittee and to record thatunderstanding in anengagement letter.
  8. 8. ‹#›#MHMWebinarPCAOB AS 16 Objectives Communicate to the audit committee the responsibilities ofthe auditor in relation to the audit and establish anunderstanding of the terms of the audit engagement withthe audit committee. Obtain information from the audit committee relevant to theaudit. Communicate to the audit committee an overview of theoverall audit strategy and timing of the audit. Provide the audit committee with timely observationsarising from the audit that are significant to the financialreporting process.
  9. 9. ‹#›The auditor should establish an understanding of the termsof the audit.#MHMWebinarAppointment and RetentionObjective ofthe auditResponsibilitiesof the auditorResponsibilitiesof managementThe auditor should record the understanding of the terms ofthe audit engagement in an engagement letter and providethe engagement letter to the audit committee annually.
  10. 10. ‹#›Obtaining InformationThe auditor should inquire of the audit committee aboutwhether it is aware of matters relevant to the audit —including, but not limited to — violations or possible violationsof laws or regulationsOverall Audit StrategyThe auditor should communicate to the audit committee anoverview of the overall audit strategy — including the timingof the audit — and discuss with the audit committee thesignificant risks identified during the auditors risk assessmentprocedures.#MHMWebinarObtaining Information & Communicatingthe Audit Strategy
  11. 11. ‹#›Overall Audit StrategyThe auditor should communicate the following matters to theaudit committee, if applicable: The nature and extent of specialized skill or knowledge needed to perform theplanned audit procedures or evaluate the audit results related to significantrisks. The extent to which the auditor plans to use the work of the companysinternal auditors in an audit of financial statements. The extent to which the auditor plans to use the work of internal auditors,company personnel (in addition to internal auditors), and third parties workingunder the direction of management or the audit committee when performingan audit of internal control over financial reporting.#MHMWebinarObtaining Information & Communicatingthe Audit Strategy — Continued
  12. 12. ‹#›Overall Audit StrategyThe auditor should communicate the following matters to theaudit committee, if applicable: The names, locations, and planned responsibilities of otherindependent public accounting firms or other persons, who are notemployed by the auditor, that perform audit procedures in the currentperiod audit The basis for the auditors determination that the auditor can serve asprincipal auditor, if significant parts of the audit are to be performed byother auditorsThe auditor should communicate to the audit committee significantchanges to the planned audit strategy or the significant risks initiallyidentified and the reasons for such changes.#MHMWebinarObtaining Information & Communicatingthe Audit Strategy — Continued
  13. 13. ‹#›#MHMWebinarResults of the AuditAccounting Policies and Practices, Estimates, andSignificant Unusual TransactionsThe auditor should communicate to the audit committee thefollowing matters:: Significant accounting policies and practices All critical accounting policies and practices to be used Critical accounting estimates Significant unusual transactions
  14. 14. ‹#›Auditors Evaluation of the Quality of theCompanys Financial Reporting Qualitative aspects of significant accounting policies andpractices Assessment of critical accounting policies and practices#MHMWebinarResults of the Audit — Continued Significant unusual transactions Financial statement presentation New accounting pronouncements Alternative accounting treatments
  15. 15. ‹#›#MHMWebinarResults of the Audit — Continued Difficult or contentious matters for which the auditorconsulted Management consultation with other accountants Going concern
  16. 16. ‹#›#MHMWebinarResults of the Audit — ContinuedUncorrected and Corrected Misstatements The auditor should provide the audit committee with theschedule of uncorrected misstatements related to accountsand disclosures that the auditor presented to management. The auditor should communicate to the audit committeethose corrected misstatements, other than those that areclearly trivial, related to accounts and disclosures that mightnot have been detected except through the auditingprocedures performed. Material written communications
  17. 17. ‹#›#MHMWebinarResults of the Audit — Continued Material written communications Departure from the auditors standard report Disagreements with management Difficulties encountered in performing the audit Other matters
  18. 18. ‹#›Form and Documentation of CommunicationsThe auditor should communicate to the audit committee thematters in this standard, either orally or in writing, unlessotherwise specified in this standard. The auditor mustdocument the communications in the work papers, whethersuch communications took place orally or in writing.TimingAll audit committee communications required by this standardshould be made in a timely manner and prior to the issuanceof the auditors report.#MHMWebinarPCAOB AS 16
  19. 19. ‹#›#MHMWebinarSEC Update
  20. 20. ‹#›#MHMWebinarSEC Update
  21. 21. ‹#› Senate confirms Mary Jo White as Chairman of theSEC in April 2013 Replaced Chairman Elisse B. Walter - since December ‘12 Term expires in June 2014 Background U.S. attorney – Southern District of New York Oversaw more than 200 assistant U.S. attorneys Prosecuted major terrorism and financial crime cases Spent a decade heading litigation at Debevoise & Plimpton#MHMWebinarSEC Update: Mary Jo White
  22. 22. ‹#›#MHMWebinarSEC Update: Regulation FD SEC issued guidance –April 2, 2013 Issued as a Section 21(a)Report of Investigation (1934Act) SEC was investigatingpotential Regulation FDviolation Involved the personalFacebook post of Netflix CEO Reports under Section 21(a)act like Interpretive Releases No enforcement action taken orwrongdoing alleged
  23. 23. ‹#›#MHMWebinarSEC Update: Social Media Use of Twitter and Facebook – ok todisseminate info Companies should apply 2008 interpretiverelease Covered disclosing material info on companywebsites Is social media a “recognized channel ofdistribution”? Investors need appropriate notice of channelsto be used
  24. 24. ‹#›#MHMWebinarSEC Update: 2008 Interpretive Release What did the 2008 interpretive release say? Covered posting of information on company websites Gave 3 considerations for deciding if info posted is “public” Is website a “recognized channel of distribution”? Is info posted in a manner designed to reach investors? Is info posted for a reasonable period of time? Recognized channel of distribution? Analysis focuses on what the company has done to notifyinvestors Steps the company can take include: Listing website address on periodic reports and press releases Establishing a pattern of posting important information on the website Informing investors that they can find important info on the website
  25. 25. ‹#›#MHMWebinarSEC Update: 2008 Interpretive Release What did the 2008 interpretive release say? (cont) Is info posted in a manner designed to reach investors? Is the website designed to direct investors to important info? Is the information prominently displayed? Does the media regularly pick up and report info posted on thewebsite? Company can use “push” technology to improve accessibility Is info posted for a reasonable period of time? (It depends) Must evaluate traffic the site generates How often investor specific info is accessed Complexity of the info posted Examples: Simple info with heavy traffic and routine use – shorter period to bepublic Complex info with low traffic and non-routine use – longer to be public Filing of Form 8-K is always sufficient to make info public
  26. 26. ‹#›#MHMWebinarSEC Update: 2008 Interpretive Release What do you do now? Companies should evaluate if they want to use socialmedia? Evaluate if they qualify under 2008 interpretation Consider if restrictions or oversight is necessary Document evaluations and rationale for decisions Educate employees about how their posts could fall underRegulation FD Consider impact of other securities laws if social media used Regulation G – reconciling non-GAAP info Forward looking statements Proxy rules if deemed proxy solicitations Offering issues – “gun-jumping” or conditioning the market
  27. 27. ‹#›#MHMWebinarSEC Update: Enforcement
  28. 28. ‹#›#MHMWebinarSEC UpdateEnforcement trends: Sequestration will not slow enforcement efforts Will impact ability to hire examination staff Limit efforts to improve technology Aggressive program expected in 2013 Whistleblowers and cooperators Financial fraud and disclosure FCPA Insider trading Asset management
  29. 29. ‹#›#MHMWebinarSEC Update: Identity Theft New rules to protect investors from identify theft Applies to broker-dealers, investment advisers and regulatedentities Must adopt programs to detect “red flags” and prevent theft Jointly with CFTC (Commodity Futures Trading Commission) Rules required by Dodd-Frank Requirements include: Applies to financial institutions and creditors Develop and implement written identity theftprevention program Designed to detect, prevent and mitigate identify theft Applies to existing accounts and opening new accounts Special requirements for credit and debit card issuers Assess validity of notifications of certain changes ofaddress
  30. 30. ‹#›#MHMWebinarSEC Update: NASDAQ NASDAQ proposes internal auditrequirement Filed with SEC on February 20, 2013 Proposal requires SEC approval Within 45 days but SEC can extend up to 90days Apply to NASDAQ listed companies as ofJune 30, 2013 Internal audit function in place by December 31,2013 For companies listed on NASDAQ afterJune 30, 2013 Internal audit function in place prior to listing Proposed rule applies to smaller reportingcompanies NYSE has a similar requirement for internalaudit
  31. 31. ‹#›#MHMWebinarIf You Enjoyed This Webinar… Join us for this related EES course: December 19: Current Regulatory Issues Impacting PublicCompanies — What You Need to Know Read these related MHM Messengers: 1-13: AICPA’s Annual SEC/PCAOB Current EventsConference Recap 22-12: Auditor Oversight by Audit Committees
  32. 32. ‹#›#MHMWebinarQuestions?
  33. 33. Rich Howard, CPAShareholder949.450.4402 | rhoward@cbiz.comRich serves as Vice President of the Board of Directors of MHM and is a memberof both our Executive Committee and Professional Standards Group. He is alsothe Regional Attest Practice Leader for the West Region. Rich leads our SECpractice nationwide and is on the Executive Committee of the Global Audit Groupfor Kreston International, the firm’s international accounting network.‹#›#MHMWebinarToday’s PresentersKeith Peterka, CPAShareholder610.866.2274 | kpeterka@cbiz.comWith more than 18 years of experience in public accounting, Keith performsnational firm responsibilities for IFRS, fair value accounting and auditing, revenuerecognition and business combinations. He is a member of the MHM SECtaskforce in charge of updating the Firm’s SEC Audit Methodology. Additionally,he is a subject matter expert for IFRS, SEC reporting and fair value accounting inMHM’s Professional Standards Group. He also is a member on the IFRSFoundations Small & Medium-sized Entities (SMEs) Implementation Group.
  34. 34. ‹#›#MHMWebinarConnect with Mayer Hoffman McCannlinkedin.com/company/mayer-hoffman-mccann-p.c.@mhm_pcyoutube.com/mayerhoffmanmccanngplus.to/mhmpcblog.mhm-pc.comslideshare.net/mhmpcfacebook.com/mhmpc

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