Q1 2025 Audit Committee Agenda

This newsletter includes a comprehensive overview of current business issues, risk considerations, and recent regulatory developments to keep audit committees in the know.

Current Business Issues and Risk Considerations

CAQ: Audit Committee Practices Report

Common Threads Across Audit Committees

The fourth edition of the Center for Audit Quality’s Audit Committee Practices Report* found that the top three priorities for audit committees are: cybersecurity, enterprise risk management, and finance and internal audit talent

Questions for Audit Committees to Consider: 

• Cybersecurity: 
  • How are new technologies affecting the threat landscape?
  • How are new employees trained to mitigate the risk associated with phishing and other attacks?
  • How have third parties been considered as it relates to cybersecurity?
• ERM:
  • Are we aware of emerging risks and have we asked management how they are being considered in the ERM program?
  • What is management’s process for updating their risk assessment outside of their usual cycle?
  • Are the board’s backgrounds sufficiently diverse to offer varied perspectives, enhance risk identification, and improve the oversight and support of management?
• Finance and Internal Audit Talent: 
  • Do we have strong relationships with both the finance and internal audit leaders?
  • Is there a succession plan for key finance and internal team members? Do we have the bench strength and leadership style of the finance and internal audit teams?
  • Do we receive periodic updates on key talent metrics, including involuntary turnover of high performers?
  • Did we consider the sufficiency of resource allocation to finance and internal audit functions such that appropriate investments can be made in long-term system and process improvements to support the company and high-quality corporate reporting?
  • Do we understand how technology advancements may affect talent and confirm that management has plans in place to manage the risk this imposes?
  • Do we understand the IIA’s new Global Internal Audit Standards?

*This report is based on a survey of 237 respondents, primarily from U.S. public companies with a market cap over $2 billion.

Audit Committee Pre-Approval of Services

• In 2024, the PCAOB highlighted some considerations for audit committees on their oversight responsibilities regarding their auditor’s independence. 
• Some of those considerations included:
  • Consider whether any services provided by the audit firm may impair the audit firm’s independence in advance.
  • Be aware that certain financial relationships between the company and the independent auditor are prohibited.
  • Consider whether the public company’s policies and procedures require that all audit and non-audit services are brought before the audit committee for pre-approval.
  • Do not approve engagements that remunerate an independent auditor on a contingent fee or a commission basis, as such remuneration is considered to impair the auditor’s independence.
  • Consider whether their auditor has implemented processes to identify prohibited relationships.
  • Discuss the following with the audit firm:
    • Processes the audit firm uses to ensure complete disclosure of all relationships with the public company and its affiliates.
    • Relationships the audit firm may have with officers, board members, and significant shareholders.
  • Consider whether pre-approval policies and procedures are sufficiently detailed as to the particular services to be provided so a well-reasoned assessment of the impact of the service on the auditor’s independence can be made.
  • Consider whether existing policies and procedures proactively alert auditors to proposed or pending merger and acquisition activity that could have an impact on auditor independence.

Read Audit Committee Pre-Approval of Services

Reporting & Disclosure Considerations

PCAOB Activities Update

PCAOB Forum For Auditors of Small Issuers and Broker-Dealers

During a March 2025 PCAOB forum for auditors of small issuers and broker-dealers, PCAOB Board member Christina Ho's address highlighted her support for the PCAOB and listed areas (below) in which she believes the PCAOB must take a more focused and measured approach to ensure adequate investor protection and a robust, resilient, and competitive public company auditing profession – one that is attractive to smaller firms and to students at institutions of higher education.

Standard setting that:

• Provides clear and direct linkages to improving audit quality.
• Is at a pace and volume that doesn’t place tremendous financial and resource strain on smaller firms.
• Focuses on technology – including AI – that includes pilot testing.

Inspections that:

• Clearly identify deficiencies that have a significant impact on investors and distinguish between, for example, severe deficiencies and those that reflect a disagreement on a firm’s exercise of judgment.

Enforcement activity that:

• Focuses on violations that are material and most significant to investors.

View Board Member Ho’s full speech here.

PCAOB Withdraws Proposed Rules on Firm Reporting and Firm and Engagement Metrics

On February 11th, the SEC published a release indicating that the PCAOB had withdrawn the rules it finalized in November 2024 related to firm reporting and firm and engagement metrics. 

The SEC received feedback from a variety of stakeholders during its extended consultation period. Many of these stakeholders shared concerns that were like those raised by BDO in our comment letter to the PCAOB during the proposal stage. 

The PCAOB has not indicated potential next steps with respect to the rules, if any, including whether they may be revisited considering the feedback to the SEC.

PCAOB Announces Updated Advisory Group Members

In March, the Public Company Accounting Oversight Board (PCAOB) announced the appointment of members of its two advisory groups - Investor Advisory Group (IAG) and the Standards and Emerging Issues Advisory Group (SEIAG). Advisory group members are appointed for two-year terms.

IAG:

• The IAG was established to provide the PCAOB with investors’ perspectives on the PCAOB’s agenda. The IAG furthers the PCAOB’s mission to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.
• 8 new members were added to the group and 8 members continued.

SEIAG:

• The SEIAG was established to advise on existing standards, proposed standards, potential new standards, and on other matters, such as emerging issues, that are of significance to the PCAOB’s work to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. 
• 13 new members were added to the group and 11 members continued.

For a complete listing of members, please click here to read the press release. 

PCAOB Updates Standard-Setting Projects

Recently Completed or Effective Standard-setting Projects

Short-Term Standard-Setting Projects

Mid-Term Standard Setting Projects

Research Projects

Rulemaking Projects