As 2014 draws to a close, finance executives and auditors are preparing for year-end reporting and auditing. What areas will draw the most attention from auditors? And which types of transactions and estimates will attract additional scrutiny from the PCAOB?
The Center for Audit Quality (CAQ) recently issued Alert #2014-13, Select Auditing Considerations for the 2014 Audit Cycle. The CAQ is a public policy organization affiliated with the American Institute of CPAs. The Alert identifies and discusses some of the more judgmental or complex audit areas, including those that have recently been the subject of attention and focus by regulators, including the PCAOB.
The Alert highlights the following seven areas that may merit a closer look this audit cycle:
- Revenue Recognition
- Going Concern
- Internal Control Over Financial Reporting
- Auditing Accounting Estimates, Including Fair Value Measurements
- Engagement Quality Review
- Professional Skepticism
- Related Parties and Amendments to Certain PCAOB Auditing Standards Regarding Significant Unusual Transactions
As valuation specialists, we at Mercer Capital regularly assist companies in the determination of fair value measurements (no. 4 in the list above). The CAQ notes that examples of management accounting estimates may include those relating to purchase price allocations, impairment assessments, the fair value of investments, allowances for doubtful accounts and loan losses, and uncertain tax positions.
While much of the guidance contained in the Alert is familiar and references existing auditing standards, it is important to note that those standards themselves are under review by the PCAOB. For that reason, this audit cycle will present an opportunity for all parties (management, auditors, specialists, and regulators) to evaluate the existing standards and practices in real time.
- PCAOB Reviews Feedback from Comment Letters
- New PCAOB Consultation Paper Addresses Fair Value Auditing Standards
- SEC Signals Increased Focus on Financial Reporting
- CAQ Highlights Risks for Upcoming Audit Cycle (via AccountingToday) (requires registration)