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 fifth 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.

  • Were any material misstatements discovered and corrected? Sometimes an auditor will discover misstatements in the financial statements and conclude that they are so significant that an unmodified opinion on the financial statements cannot be expressed unless those misstatements are corrected. As a result, management will generally agree to correction. The Audit Committee should inquire about any such findings and corrections.
  • Were there any disagreements between the auditors and management? Disagreements may arise concerning the presentation of the financial statements or the auditor’s conduct of the audit. The Audit Committee should inquire about any such disagreements, including those that were resolved to the satisfaction of the auditor.
  • What specific representations were received from management? Before issuing a report on the financial statements, the auditor will require certain written representations from management. The Audit Committee may wish to know exactly what those representations were.

In Part 6 of this series, we will consider three more questions that should be of importance to audit committees.

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