 and welcome to the session in which we would look at the communication between the auditor and the audit committee, which are part of corporate governance, specifically under the PCAOB. And every time we mentioned the PCAOB, we are dealing with a public company, we are dealing with a public company, company that's publicly traded. Now this session is very similar to the communication between the auditor and the corporate governance for non publicly traded companies. The good thing about those topics are they are easy for you, they are easy for you in a sense that you just have to memorize them, be familiar with them, a list of laundry that you have to know. For me it's harder because there is not much I can, I can add value, hopefully I can add more value to you in sessions like this. For example, if I'm teaching audit sampling, it'll be much easier because it's something I can explain, I can show you what it is. In this session, it's going to be a list of laundry, you just have to memorize it. If you're studying for the CPA exam, I strongly suggest you check out my website, forehandlectures.com. I do not replace your CPA course, please keep your CPA course, you will need it. I'm not trying to take it away or replace it, I can't, I wish I can't. So whether you're taken back or Roger, Glyme, Wiley or any other course, I can be a useful addition. I can add 10 to 15 points to your CPA exam. Simply put, here's what I'm offering you, try me for a month, try me for a month if you're finding difficulty with your CPA exam. For $29.99, that's what you would lose if you don't like it too bad, you lost $30, it's in my pocket, it went from yours. That's your risk. Your return is you might be able to add points and pass the exam. Are you willing to take that risk? Okay. And if not for anything, check out my website to see how well is your university or college doing on the CPA exam. It's going to tell you how river was your accounting program. I do have lectures and resources for other courses and CPA sections. And if you have any doubts, connect with me on LinkedIn and check out my LinkedIn recommendation, people that use my system and pass the exam. And you might change your mind, please connect with me on YouTube, subscribe, like the recording, connect with me on Instagram and Facebook. So we're going to start by looking at the auditor's objective. What is the auditor's objective with this communication? And simply put, what I'm going to show you on this slide summarizes everything, but we're going to go a little bit more in details. Again, it's a list of items, a list of items. What is the auditor's objective? Well, the auditor's objective is to communicate to the audit committee. The responsibility is regarding the audit and establish an understanding of the terms of the audit engagement with the audit committee. Well, come on. We know we need an engagement letter and everything and it's in that engagement letter. It's basically a long sentence for we need an engagement letter and you need to be familiar with engagement letter. I have one whole recording for my audit course about engagement letter. You need to obtain information from the audit committee relevant to the audit. Now, we're going to talk a little bit more like you would ask them, you would inquire with them if there's any issues, any issues, if they are aware of any illegal act or fraud. Communicate with the audit committee information about the strategy and timing of the audit, very similar to the communication between the auditor and the, and the corporate and governance for a private company. We'll discuss a little bit more in details and provide the audit committee with timely observation about the audit that are significant. And those are the four major things that you would need to communicate with the audit committee. Now, who's the audit committee? Maybe I should talk a little bit more about this because I have the slide here. Basically, this is what a corporation structure would look like. The corporate governance. Who's in charge of the company? Who's really in charge of the company on the top are the shareholders. But all what the shareholders do is vote the board of directors. Now, you can vote yourself if you want to, but basically the board of directors, they're in charge of the company. The board of directors will form subcommittees like the internal audit committee, the audit committee. Okay, this is what we're dealing with compensation committee, then they will hire management, the CEO, the CFO, they would hire the employees, they would run the company on your behalf. So what we are dealing with in this session is what do we need to communicate with this audit committee who hires the auditor and fires the auditor. First of all, what's the form of communication? How should we communicate with them? It could be oral, it could be in writing. Obviously, it's better to be in writing, right? Because oral, they might say we did not know about it. Timing, the timing is just like with the other private private companies has to be timely, but it has to be prior to the issuance of the audit report. So if there's any issues you need to communicate with them, it has to be prior to the issuance of the audit report. Now, what should we communicate? And here's the list of things that's going to expand to the four items that I showed you on the first slide. First of all, not first of all, let's start with this. Significant issues discussed with management and in connection with the auditor's appointment or retention. So any thing you discussed with management about appointment and retention, you will need to let them know. The audit committee now. Establish an understanding in terms of the audit. I already told you about this. It's the basically engagement letter. We should establish an understanding of the terms of the engagement with the audit committee, including the following matter, the objective of the audit. Why are we doing this audit? Remember, provide reasonable assurance, right? The auditor responsibility. We're not responsible for the financial statements. Management is responsible for the financial statements and we have to provide them an engagement letter annually to the audit committee. Simply put, we are dealing here with the engagement letter. This is the second time I mentioned it in this session and you should be very familiar with the engagement letter. Let's take a look what else we need to inquire of the audit committees about matters relevant to the audit, including their knowledge of any possible laws, violation of laws or regulation. Da, why not? Ask them. Okay? So if there's anything that they did not mention and we discovered, we would let them know. Overall audit risk strategy, timing of the audit, insignificant risk. Notice overall nothing specific. So they will try maybe to trap you on the example, giving you, for example, which of the one they should not communicate with the audit committee. And if something very specific, then they don't communicate. They don't let them know. We communicate an overview of the audit strategy, including the timing of the audit, but nothing specific. Now, not when we are going to be taking the inventory or the location or what's the materiality, the threshold, anything like that, anything specific they should not know about. Any significant risk identified during the auditor's assessment, we'll discuss it with them. If we need specialized skills, and remember we have a whole topic about specialized skills, like if we need an actuary or a lawyer or knowledge and plans to use the work of the entity's internal control. If we are using their internal control, we need to basically establish that. Or if we are using the basically integrated audit, a group audit, if we are using other auditors, we need to communicate all this information to the audit committee. Also, we need to discuss with them any significant accounting policies and practices, critical accounting policies and practices, and the reason why they are critical. We need to define why they are critical, critical accounting estimates. Same thing. We need to know, explain to them why these estimates are critical. Description of management processes, assumptions, significant assumptions made by management, and significant changes to those assumptions if there's any changes. So, any significant or unusual transactions that are outside the normal course of business. Anything that's unusual and significant, we'll need to communicate with them. Also, difficult or contentious matters. Any difficulty for which the auditor consulted outside the engagement team, we need to discuss with them. Management consultation with other accounting, like opinion shopping, going concern issues. If the company, if there's any issues with the company going concern, and you need to know very well what going concern, it means in the next 12 months, they may not survive because of their financial situation. We need to discuss this. This is very important. Any incorrect misstatement, it means it has not been corrected, provide the audit committee with a schedule of incorrect misstatement that the auditor presented to management, and discuss with the audit committee the basis for the determination that the incorrect misstatements were in material. We need to show them those statements were not corrected, and discuss the materiality of them. Any corrected misstatement, the auditor should communicate the corrected misstatement that were detected by the auditor, and discuss the implication relative to the internal control over financial reporting. And this is a little bit different than private companies. You may not have to discuss this that far, but for PCAOB, this is important when you include the internal control over financial reporting. Simply put, any material written communication between the auditor and management material, again material is we have to kind of determine what's the material, any departure in the audit report. Of course, if we're modifying the audit report when the auditor expect to modify the opinion, or include explanatory language to the audit report, do you think we need to communicate this with the people that hire us? We sure do, we sure do. Any disagreement with management over significant matters that were not satisfactorily resolved, all the were satisfactorily resolved. We need to let them know that we we had some disagreement. Any difficulties encountered during the audit, performing the audit, what could be some difficulties, well significant delays or unavailability of personnel, unreasonable time pressure to complete the audit, they're trying to rush us, unreasonable management restriction, we cannot get to certain documents that we want to, and unexpected difficulties in obtaining sufficient appropriate evidence. They're just giving us the run around constantly. Look, any other matter, the auditor should communicate arising out of the audit that are significant to overseeing the company's financial reporting, because the audit committee is responsible, the board of directors is responsible for the company's financial reporting, but the audit committee is that link, so we want to communicate with them anything. Look, other matters, other matters is open for interpretation, and if I was the auditor, I would just communicate with them as much as possible to be on the safe side. Look, we told you, okay, I mean we did our job, you need to be aware of it, do something about it, okay. At the end of this recording, I would like to remind you that if you are studying for your CPA exam, to check out my website, forhatlectures.com. Once again, I don't replace your beloved CPA review course, I wish I can. If I can, I will tell you, look, cancel it, I will charge you a little bit more than $30, but I can tell you that, I will, and that will be a disappointment from my end, but I can be an excellent, useful addition to your CPA review course that's going to help you learn the material, the key to the exam is to learn the material. Now, notice in this session there's not much for me to add value, I understand this. In this session, it was a list of items you have to know. For me, if you're an auditor, all these items, I was an auditor, I'm no longer an auditor, make sense, but for you as a CPA, a future CPA, hopefully everything that we mentioned here makes sense from your auditing knowledge, from your auditing course, and if you're practicing this should be, this should be like an easy topic. Anyhow, before I leave, again, check out my website to find out how well is your university doing on the CPA exam. Study hard, good luck, and most importantly, stay safe.