At an open meeting held on August 15, 2012, the Public Company Accounting Oversight Board (“PCAOB”) voted to approve new Auditing Standard No. 16, Communications with Audit Committees. Although the new standard retains most of the preexisting communication requirements, there are a number of new areas that the auditor must discuss with the audit committee, and there are some areas where the auditor must seek specific responses from the audit committee. The new standard, available at http://pcaobus.org/Rules/Rulemaking/Docket030/Release_2012-004.pdf, is intended to benefit investors by enhancing the relevance and quality of communications between the auditor and audit committee, facilitating audit committee oversight of financial reporting and fostering improved financial reporting.

Background and Effective Dates

The PCAOB initially proposed Auditing Standard No. 16 for comment in March 2010 and issued a revised proposal in December 2011 following an initial comment period and feedback received at a September 2010 roundtable. Auditing Standard No. 16 expands on and supersedes existing standards on communications with audit committees (interim standards AU sec. 380, Communication With Audit Committees, and AU sec. 310, Appointment of the Independent Auditor), and makes conforming changes to related standards. The new standard requires SEC approval and, if approved, will apply to audits of public company financial statements for fiscal years beginning on or after December 15, 2012.

Auditing Standard No. 16 is the first standard that the PCAOB has adopted following enactment of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, a new PCAOB standard will not apply to audits of “emerging growth companies” (“EGCs”) unless the SEC determines that the application of the standard is “necessary or appropriate in the public interest, after considering the protection of investors and whether the action will promote efficiency, competition, and capital formation.” At its August 15 meeting, the PCAOB expressed its view that the SEC should approve the application of the new standard to EGCs.

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