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A few days ago, the PCAOB issued this 9-page “Staff Observations Report” describing inspection observations related to auditor communications with audit committees, finding that 93% of the audits inspected in 2014 passed muster. Here’s an excerpt from the related press release:

Inspections staff identified deficiencies in complying with the new standard in 7 percent of the relevant audits inspected. Those deficiencies did not by themselves result in an insufficiently supported audit opinion, but nevertheless constituted departures from the requirements of the standard and indicated a potential defect in firms’ systems of quality control. Inspections staff also identified deficiencies related to other PCAOB rules and standards requiring communications with audit committees, such as communications concerning independence.

During interviews with inspections staff, audit committee chairs generally indicated that effective two-way communication with their auditors had occurred. Some audit committee chairs noted that after the effective date of the standard, there had been improvements in the robustness and formality of communications with their auditors, including more in-depth discussions with the auditor about audit progress, significant risk areas, and audit findings. Other audit committee chairs noted that their auditors had been communicating the matters required under the standard even before the standard came into effect and, accordingly, they had not observed a significant change in their communications with their auditors in 2013.

Auditor Engagement: PCAOB Requests Comment on How AS #7 Is Faring

A few days ago, the PCAOB issued this “request for comment” to check how the implementation of AS #7, “Engagement Quality Review” has been faring since it’s adoption in 2009…

Non-GAAP Financial Measures: Will the SEC Curb Their Use?

As noted in this Bob Lamm blog & Cooley blog, this WSJ article reports that SEC Chair White said that the SEC is considering whether to restrict the use of non-GAAP financial measures. In remarks, Chair White said: “[y]our investor relations folks, your CFO, they love the non-GAAP measures because they tell a better story….We have urged for some time that companies take a very hard look at what you are doing with your non-GAAP measures. We have a lot of concern in that space.” These comments from Chair White follow similar ones that she made back in January.

Then a week or so later, SEC Chief Accountant Jim Schnurr delivered this speech, in which he said companies should expect the SEC Staff to remain vigilant in its review of non-GAAP measures and their compliance with existing rules Here’s an excerpt from that: “The proliferation of non-GAAP reporting measures among registrants, and reliance and reporting by analysts, should warrant increased focus by management and the audit committee,” he said. “I believe the focus should go beyond determinations that the measures comply with the Commission’s rules and include probing questions on why, in contrast to the GAAP measure, the non-GAAP measure is an appropriate way to measure the company’s performance and is useful to investors.”

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Stats: How Retail Holders Vote
– Proxy Access: T. Rowe Price’s Updated Policy
– Proxy Access: The Latest Stats
– Mobile Proxy Statements: Remember the “Tracking Cookie” Prohibition
– A Closer Look at Buffett’s Annual Shareholders Letter
– ESG: Glass Lewis to Include Ratings in Reports

– Broc Romanek