Auditing


  The PCAOB is seeking input as it weighs possible standard-setting activities related to auditing accounting estimates and fair value measurements.

In a staff consultation paper, available at tinyurl.com/k8ax3bm, the PCAOB Office of the Chief Auditor seeks comments on the potential need for changes to PCAOB standards—and a possible approach to a new auditing standard.

“Accounting estimates and fair value measurements can be subjective and complex, yet they can be an important part of a company’s financial statements and critical to investors’ decision-making,” PCAOB Chairman James Doty said in a news release. “The PCAOB and foreign audit regulators have identified compliance with auditing requirements related to fair value measurements as an area of continued concern, and I support the staff’s outreach efforts in this important area.”

The consultation paper describes the staff’s preliminary views as a possible approach to changing the PCAOB’s standards and seeks other views on that approach.

Comments are sought by Nov. 3 and can be submitted to comments@pcaobus.org.


  The PCAOB urged auditors to focus on the board’s standards for auditing revenue.

In Staff Audit Practice Alert No. 12, Matters Related to Auditing Revenue in an Audit of Financial Statements, the PCAOB discusses board requirements for auditing revenue that are relevant to significant audit deficiencies found frequently during inspections.

The alert, available at tinyurl.com/mpgr2ff, discusses:

  • Testing whether revenue was recognized in the correct period.
  • Evaluating whether the financial statements include the required disclosures regarding revenue.
  • Responding to risks of material misstatement due to fraud associated with revenue.
  • Testing and evaluating controls over revenue.
  • Applying audit sampling procedures to test revenue.
  • Performing substantive analytical procedures to test revenue.
  • Testing revenue in companies with multiple locations.


Martin Baumann, the PCAOB’s chief auditor and director of professional standards, said in a news release that engagement partners and senior management team members should focus on those areas throughout the audit. Engagement quality reviewers also should keep those matters in mind, he said.

Baumann encouraged audit firms to revisit their audit methodologies to assure that auditing standards are followed with respect to revenue. He said firms should consider whether additional training of auditing personnel or other steps are needed to assure compliance.

The alert was issued because revenue is an area in which board inspectors have most often identified significant audit deficiencies.


  The PCAOB issued a report calling on audit firms to improve the quality of their audits of brokers and dealers to comply with rules and standards.

As a result of findings from the PCAOB’s interim inspection program, the board urged firms that audit brokers and dealers to reexamine their audit approaches and take action to prevent deficiencies and independence issues.

The board is urging firms to consider ways to prevent deficiencies and to seek ways to better anticipate and address risks that might arise in specific broker and dealer audits. The PCAOB encouraged firms to constantly urge personnel to use due professional care and professional skepticism in audits, and encouraged firms to review a number of key areas.

The guidance was delivered in the third annual report of the PCAOB interim inspection program for auditors of broker-dealers registered with the SEC. The PCAOB identified deficiencies in audits performed by 56 of the 60 audit firms inspected, and in 71 of the 90 (79%) audits inspected. That percentage is down slightly from the previous year, when deficiencies were found in 57 of 60 (95%) audits inspected.

The report is available at tinyurl.com/l2dj3tj.

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