Securities Law

MONTH-IN-BRIEF (May 2025)

PCAOB Reports on 2024 Audit Committee Conversations

By Thomas W. White, Retired Partner, WilmerHale

The Public Company Accounting Oversight Board (“PCAOB”) has issued its annual “spotlight” report setting forth observations and takeaways from staff conversations with 272 audit committee chairs in 2024. (Notably, according to the PCAOB, 78 percent of these audit committee chairs had not previously spoken with the PCAOB as part of its outreach process.) The report describes topics that audit committee chairs spend the most time discussing with their auditors. These matters and key points include:

• Factors Affecting Relationships with the Audit Firm. Audit committee chairs described key factors that are vital to maintaining good working relationships with the firms. These included transparent two-way communication; coordination between the auditor, management and the audit committee; and technical expertise and experience of the audit team.
• Firm Inspection Reports. Most of the audit committee chairs interviewed review the PCAOB’s inspection report of their auditor and other information on the PCAOB website when deciding whether to reappoint the auditor.
• Economic Environment Affecting the Audit. Many audit committee chairs noted that they had discussions with their auditors regarding both economic and geopolitical considerations, including elevated interest rates; increased fraud and technology risks; supply chain disruptions; inflation; and geopolitical considerations. The substance of the discussions largely concerned the risks that these matters presented in the audit and how the audit team was planning to address them.
• Auditing and Accounting. Approximately 63 percent of audit committees had additional discussions, beyond the required communications, with their auditors related to the application to the audit and their financial statements of existing auditing or accounting standards. Audit committees shared that critical audit matters (“CAMs”) were actively discussed during audit committee meetings. Several audit committee chairs criticized the length of CAMs (wanting them to be briefer), the readability of CAMs, and “boilerplate language” that was not specifically tailored to their company.
• The Use of Emerging Technologies in the Audit. The expanded use of technology, including artificial intelligence, was a frequent point of discussion between audit committees and their auditors. Audit committee chairs noted that while the use of technology has the potential to enhance the performance of audit procedures, it cannot replace the need for human oversight. Chairs were concerned that overreliance on technology and automation may result in auditors becoming complacent and not exercising adequate professional judgment and skepticism. At the same time, many chairs wanted to see an increased use of automation and analytics in the audit process to enhance the efficiency and effectiveness of the audit and asked whether this would reduce fees.