By Cydney Posner
The SEC has approved Auditing Standard No. 16, Communications with Audit Committees, described in this News Brief.
The JOBS Act provided that any additional rules adopted by the PCAOB subsequent to April 5, 2012 do not apply to the audits of EGCs unless the SEC determines that the application of the additional requirements is necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition and capital formation. In the release, the SEC found that applying the new auditing standard to audits of EGCs is necessary or appropriate in the public interest. In particular, the SEC took into account the PCAOB's observation "that the enhanced audit committee communication requirements of Auditing Standard No. 16 may be of particular benefit to EGCs given that: (1) some EGCs are companies that are relatively new to the SEC reporting process, and may have new audit committee members that may be less familiar with SEC reporting requirements and have relatively more questions regarding how to present their financial statements for SEC reporting purposes; and (2) some EGCs may also be considering, for the first time, initial choices in their accounting policies and practices that could have implications for their financial reporting." The SEC also considered "the PCAOB's overall approach to Auditing Standard No. 16, which was designed to: (1) scale the required communications to the size and complexity of the company being audited; (2) maintain flexibility (e.g., with respect to auditors communicating orally or in writing); (3) minimize duplicative or redundant communications to the audit committee from the auditor and management; (4) focus the communications on the accounting matters that are significant to the auditor and the audit committee; and (5) reduce auditors' search costs (i.e., the costs associated with researching the federal securities laws' and auditing standards' various communication requirements) by providing a list of other PCAOB standards and rules that contain audit committee communication requirements in one place. Moreover, the auditor's requirements under the new standard are focused on communicating the results of audit procedures that the auditor is already required to perform."