AS 1301 is the PCAOB standard that tells the auditor of an issuer what to communicate to the audit committee, when, and how to document it. Paragraph .26 sets the timing rule in one line: every required communication is made in a timely manner and prior to the issuance of the auditor's report.
This post lists the required matters in audit order, then contrasts the standard with AU-C 260 for nonissuers. For the AU-C calendar, see AU-C 260 communications calendar.
What is the purpose?
Paragraph .01 requires the auditor to communicate with the audit committee about matters related to the conduct of the audit and to obtain information from the committee relevant to the audit. It also requires the auditor to establish an understanding of the terms of the engagement and record it in an engagement letter. The objectives (paragraph .03) are to communicate the auditor's responsibilities and the terms of the engagement, obtain relevant information, give an overview of the strategy and timing, and provide timely observations that are significant to the financial reporting process.
Paragraph .02 adds that other PCAOB rules, standards and laws require further communications (Appendix B lists them), and AS 1301 does not replace them.
What is communicated at appointment and planning?
- Appointment issues (.04): significant issues the auditor discussed with management in connection with appointment or retention, including significant discussions on applying accounting principles and auditing standards.
- Terms of the engagement (.05 to .07): the objective of the audit, the auditor's responsibilities and management's responsibilities. The auditor records the understanding in an engagement letter and provides it to the audit committee annually. If the audit committee cannot be brought to an understanding of the terms, the auditor declines to accept, continue or perform the engagement.
- Information from the committee (.08): the auditor inquires whether the committee is aware of matters relevant to the audit, including violations or possible violations of laws or regulations.
- Strategy, timing and significant risks (.09 to .11): an overview of the overall audit strategy and timing, and a discussion of the significant risks identified in risk assessment. The note says the overview should not give specifics that would compromise the procedures. Paragraph .10 adds, if applicable, specialized skill or knowledge needed, planned use of internal auditors and others, the names, locations and responsibilities of other independent public accounting firms or persons performing audit procedures, and the basis for the partner's lead-auditor determination. Paragraph .11 requires communication of significant changes to the strategy or the significant risks, with the reasons.
What is communicated about the results?
Paragraphs .12 to .24 hold the long list. In summary:
| Paragraph | Matter |
|---|---|
| .12 | Significant accounting policies and practices; critical accounting policies and practices (with the reasons they are critical); critical accounting estimates (the process, significant assumptions with high subjectivity, significant changes); significant unusual transactions |
| .13 | The auditor's evaluation of the quality of financial reporting: qualitative aspects of policies, including bias; assessment of critical accounting policy disclosures; basis for conclusions on critical accounting estimates; the business purpose of significant unusual transactions; presentation and disclosure; concerns on new pronouncements; alternative treatments discussed with management |
| .14 | Responsibility for, procedures on, and results about other information in documents containing audited financial statements |
| .15 | Difficult or contentious matters on which the auditor consulted outside the engagement team and reasonably determined are relevant to the committee's oversight |
| .16 | The auditor's views on matters where management consulted other accountants and the auditor has a concern |
| .17 | Going concern matters, when applicable |
| .18 and .19 | The schedule of uncorrected misstatements, the basis for immateriality including qualitative factors, the warning that they could cause future-period misstatement, and corrected misstatements other than clearly trivial ones |
| .20 | Other material written communications with management |
| .21 | A draft of the auditor's report, provided and discussed |
| .22 | Disagreements with management that could be significant, whether or not resolved |
| .23 | Significant difficulties encountered |
| .24 | Other significant matters, including complaints or concerns about accounting or auditing matters that came to the auditor's attention and the results of the procedures on them |
Paragraph .23 lists examples of significant difficulties: significant delays or unavailability of personnel or unwillingness to provide information, an unreasonably brief time to complete the audit, unexpected extensive effort to obtain evidence, unreasonable management restrictions, and management's unwillingness to make or extend its going concern assessment when asked. The note says such difficulties could represent a scope limitation.
Can management cover some of these?
Yes, for paragraphs .12 and .18. If management communicates some or all of those matters, the auditor need not repeat them at the same level of detail, as long as the auditor participated in management's discussion, affirmatively confirmed that management adequately communicated them and, for critical accounting policies, identified the ones the auditor considers critical. Omitted or inadequately described matters must still be communicated, and the auditor includes a copy or summary of management's communication in the audit documentation (paragraph .25 note).
How must it be documented?
Paragraph .25 allows oral or written communication unless the standard specifies otherwise, and requires documentation in the work papers either way. AS 1215.19i requires the issuing office to obtain, review and retain all matters to be communicated to the audit committee from other offices and other auditors, and the EQR checks that appropriate matters were communicated or identified for communication (AS 1220.10i). See AS 1220.
When must it happen?
Paragraph .26: timely and prior to the issuance of the auditor's report, with the appropriate timing of a particular communication depending on the significance of the matter and the follow-up action needed, unless PCAOB rules or securities laws specify other timing. A note permits communicating to only the audit committee chair when that serves timeliness during the audit, but the matter must still go to the committee before the report is issued.
Illustrative calendar
For a December 31, 2026 year-end with a planned report release in mid-March 2027:
- Planning meeting (fall 2026): engagement letter, strategy, timing, significant risks, other firms involved.
- Interim update: changes in strategy or risks and significant difficulties, to the chair if timing requires.
- Completion meeting (before report release): critical accounting policies and estimates, quality of reporting, uncorrected and corrected misstatements, going concern, disagreements, draft report.
How does AU-C 260 differ?
| Point | AS 1301 (issuers) | AU-C 260 (nonissuers) |
|---|---|---|
| Audience | The audit committee; if none, the whole board; for nonissuers, those who oversee reporting (Appendix A) | Those charged with governance, determined by the auditor (paragraph .07) |
| Engagement letter | Provided to the audit committee annually (.06) | Terms handled under AU-C 210 |
| Critical accounting policies and estimates | Specific required communications (.12, .13) | Views about qualitative aspects of significant accounting practices, including policies, estimates and disclosures (.12a) |
| Draft report | Provide and discuss a draft (.21) | Not a listed requirement in paragraphs .10 to .14 |
| Form | Oral or written, always documented (.25) | In writing if oral would not be adequate (.16) |
| Restricted use | Not in AS 1301 | Written communication is a by-product report and states restricted use (.18) |
| Timing | Prior to issuance of the report (.26) | On a timely basis (.19) |
| Documentation | Work papers, oral or written (.25) | Oral: when and to whom; written: retain copy (.21) |
AU-C 260 paragraph .09 also relieves repeat communication when all of those charged with governance are involved in management, which has no counterpart in AS 1301.
Frequently asked questions
Who is the audit committee if the company has none?
Appendix A defines it as the entire board of directors if no committee exists. For audits of nonissuers, if there is no committee or board, it is the persons who oversee the accounting and financial reporting processes and the audits.
Must everything be in writing?
No. Paragraph .25 permits oral communication unless the standard says otherwise, with documentation either way.
Sources
- PCAOB, AS 1301, Communications with Audit Committees (paragraphs .01 to .26 and Appendix A): https://pcaobus.org/oversight/standards/auditing-standards/details/AS1301
- PCAOB, AS 1215, Audit Documentation (paragraph .19): https://pcaobus.org/oversight/standards/auditing-standards/details/AS1215
- AICPA, AU-C Section 260, The Auditor's Communication With Those Charged With Governance (paragraphs .07, .09, .12, .16, .18, .19, .21): https://www.aicpa-cima.com/resources/landing/aicpa-professional-standards
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