March 24, 2010 / 11:17 PM / 10 years ago

US audit watchdog weighs board communications rule

*Watchdog considers rule on auditors & audit committees

*PCAOB to hold public meeting next week

*Issue has renewed focus amid Lehman examiner’s report

By Emily Chasan

NEW YORK, March 24 (Reuters) - The U.S. auditor watchdog said on Wednesday it would consider proposing a rule about how auditors communicate with their audit committees on boards of directors.

The Public Company Accounting Oversight Board, which was created as part of the 2002 Sarbanes-Oxley Act, said it would hold an open meeting on March 29, to discuss a possible standard.

“The proposal and proposed amendments would address the requirements for auditors’ communications with audit committees,” the PCAOB said in a statement on Wednesday.

The PCAOB has considered issuing rules on this issue for the past several years to formalize ways that auditors are expected to communicate with the audit committee of the company they are auditing.

In the past few weeks, such communication methods have gotten a lot of attention after a court-appointed examiner in the Lehman Brothers Holdings Inc LEHMQ.PK’s bankruptcy found that the investment banking firm used an accounting gimmick to temporarily remove about $50 billion in assets from its balance sheets.

The examiner said Lehman could have claims against auditor Ernst & Young [ERNY.UL] for negligence and failing to abide by professional standards related to communications with Lehman’s audit committee about accounting transactions. [ID:nN11252693]

Ernst & Young has recently said it did tell Lehman’s board about allegations of questionable accounting tricks from a whistleblower. [ID:nN22205325]

A new rule from the PCAOB could affect how auditors communicate with boards about changes in significant accounting policies, or how auditors communicate to the board about management’s judgments and internal controls, among other things.

Sarbanes-Oxley required the audit committee to take a larger role in approving whether an auditor could conduct non-audit services at a firm, and said auditors must communicate certain information to an audit committee “on a timely basis.” (Reporting by Emily Chasan, editing by Leslie Gevirtz)

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