As audit committees move into overdrive to review the 2020 annual reports on Form 10-K of calendar-year companies, in this Alert we offer “tips” drawn from recent Securities and Exchange Commission (“SEC”) rule changes, guidance, enforcement cases and staff comment letters. We also provide helpful insights for audit committees into the Public Company Accounting Oversight Board’s (“PCAOB”) views on how registered independent public accounting firms can deliver an effective integrated audit of issuer financial statements and internal control over financial reporting.
Under the Sarbanes-Oxley Act of 2002 amendments to the federal securities laws, audit committees of public companies are charged with overseeing each of the other two gatekeepers, the management preparers of financial statements and the accounting firms serving as independent auditors of those financial statements and related accounting controls. In 2020, the SEC and PCAOB delivered a carefully coordinated message to the triad of financial reporting “gatekeepers” – the audit committee, management, and accounting firms – that they must discharge their respective duties effectively to assure investors in the public markets of the accuracy, completeness and fundamental integrity of the SEC financial reporting system. The extraordinary pressures and uncertainties created by the COVID19 pandemic have already heightened the importance of audit committee oversight, as the work of all three gatekeepers is judged by a critical investing public. With the advent of a Democratically-controlled Congress and a new set of top regulators, we believe this critical scrutiny will only intensify.
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