An important issue is the communication to the audit committee of known errors and possible misstatements detected during the course of the audit. We state unequivocally that audit committees must be informed promptly either by management or the external auditor of all misstatements that could have a material impact on the accuracy or reliability of the financial statements or other public disclosure documents.

Examples of the types of misstatements that should be communicated to the audit committee include:

  • material misstatements that have not been corrected or agreed to by management and, if not resolved, would result in a qualification of the auditor's report;
  • misstatements detected during the course of the audit, which are not considered material either individually or in the aggregate;
  • any misstatement or finding that represents a known or suspected fraud or illegal act;
  • misstatements or findings that indicate significant weaknesses in internal control, including the design or operation of the financial reporting or continuous disclosure process; and
  • misstatements that may cause future financial statements or public disclosures to be materially misstated.

Whether or not misstatements that are below the materiality threshold should be communicated to the audit committee should be based on the audit committee's expectations and the auditor's professional judgment. Today, professional standards and current practice place the emphasis on communicating more, rather than less.