AUDIT COMMITTEE: QUESTIONS TO ASK YOUR AUDITOR, PART 4

Posting by John Merchant

If you have been appointed to an Audit Committee, you may be wondering what information the auditors will normally provide and what questions you should ask.

There are certain “required communications” that an auditor should routinely provide to the Audit Committee as part of an audit conducted in accordance with generally accepted auditing standards (GAAS). These communications were established in Statement on Auditing Standards No. 114. In addition to these required communications, there are questions that you should ask to help assure your understanding of the audit process. This is the fourth part of a seven part series that presents a discussion of those communications.

Once the auditor has completed evidence gathering and is ready to issue an opinion on the financial statements the Audit Committee should meet again with the auditor to gain insight into the conduct of the audit and certain points that will not be covered in the basic auditor’s opinion letter. The following are some of the questions that should be addressed.

  • Did the auditor discover anything that is not readily apparent from the financial statements? Such items may include pending litigation, hard to value investments, unusual transactions, excessive employee turnover, customer complaints or statements in the minutes of meetings that seem inconsistent with audit evidence.
  • Were any significant difficulties encountered in performing the audit? Such difficulties may include management being unprepared for the audit, difficulties in accessing or dealing with key management personnel, poor working conditions or difficulties in gaining an understanding of transactions or obtaining audit evidence.
  • Were there any uncorrected misstatements in the financial statements? When auditing the financial statements prepared by management, auditors will often discover misstatements. In other words, some of the numbers or disclosures are found to be incorrect. If management chooses not to correct such misstatements the auditor must decide whether those misstatements are material to a fair presentation of the financial statements or whether they are insignificant and, therefore, immaterial. If the conclusion is that they are immaterial, the auditor will likely waive adjustment of those misstatements without impact on the audit opinion. In such cases the Audit Committee should be informed about any known misstatements that were considered immaterial by management and the auditors and consequently were left uncorrected.

Part 5 of this series will continue our discussion of questions to ask the auditors upon completion of their work.

Add comment

 

1000 symbols left

Security code
Refresh

Share this post


Bond Beebe in now Withum

Bond Beebe is now Withum. This powerful union expands and enhances our capabilities and services. Read More>>

+