The PCAOB recently issued a new Audit Focus report on engagement acceptance by accounting firms. Like most PCAOB publications targeted toward auditors, this one is also worth reading by public company audit committees and their advisors. The report covers a variety of issues that auditors should consider before accepting particular engagements. This excerpt lays out questions that auditors should consider in connection with any new engagement:

– Were there any recent changes in ownership, company management, the board of directors, or the composition of the audit committee related to the prospective engagement? What were the reasons for the changes?

– What are the qualifications of the company’s current management team and the audit committee associated with the prospective engagement, and do these qualifications enable them to execute their roles and responsibilities effectively?

– Has the audit firm considered any previous restatements or material weaknesses (e.g., nature of restatements, nature of deficiencies, whether they are long-standing, etc.)?

– Were there any risk factors that indicate that company management and those charged with governance lack integrity?

– Has the audit firm thoroughly considered whether its personnel are free from any obligation to, or interest in, the prospective engagement, company management, or the company’s owners?

– Is the audit firm independent or will the audit firm be able to become independent for the audit and professional engagement period?

– Does the audit firm have sufficient knowledge and experience or appropriate access to subject matter experts, including relevant industry expertise, to undertake the work?

– Was the company’s management or audit committee aware of any improper activities conducted by the former auditor during interim reviews or annual audits, including activities related to the supervision of the audit or to the engagement quality review?

– Was the company’s management or audit committee aware of any illegal acts identified by the predecessor auditor and not reported to the U.S. Securities and Exchange Commission or any other relevant regulators?

The report also addresses inquiries that an audit firm must make if a company is changing auditors and reviews certain responsibilities of successor auditors. Audit committees and their advisors likely will find the report helpful in identifying potential areas of concern to a new auditor in connection with its engagement and in developing strategies to address those concerns.

– John Jenkins