PCAOB Reminds Auditors of Requirements Related to Unusual Transactions


The PCAOB on Wednesday issued an alert reminding public company auditors of their responsibilities related to the risk of material misstatements stemming from error or fraud associated with significant unusual transactions.

 

“The PCAOB’s message to auditors, in this challenging economic environment, has consistently emphasized attention to audit risk and adherence to existing audit requirements,” Martin F. Baumann, chief auditor and director of Professional Standards, said in a press release. 

 

Staff Audit Practice Alert no. 5, Auditor Considerations Regarding Significant Unusual Transactions, complements Staff Audit Practice Alert no. 3, Audit Considerations in the Current Economic Environment, by taking a deeper look at risks of material misstatement associated with significant unusual transactions, a risk that the PCAOB said it believes continues to exist today. 

 

The alert describes significant unusual transactions as “ significant transactions that are outside the normal course of business for the company, or that otherwise appear to be unusual given the auditor’s understanding of the company and its environment.”

 

“Significant unusual transactions, especially those close to period end that pose difficult ‘substance over form’ questions, can provide opportunities for companies to engage in fraudulent financial reporting,” it says.

 

The alert compiles existing requirements from PCAOB auditing standards regarding significant unusual transactions and groups them into the following categories: 

 

  • Identifying and assessing risks of material misstatement.
  • Responding to risks of material misstatement.
  • Consulting others.
  • Evaluating financial statement presentation and disclosure.
  • Communicating with audit committees.
  • Reviewing interim financial information. 

 

Practice Alert no. 5 will assist auditors as they begin their work related to 2010 quarterly reviews and audits of financial statements,” Baumann said in the release.

 

Where to find January’s flipbook issue

Starting this month, all Association magazines — the Journal of Accountancy, The Tax Adviser, and FM magazine (coming in February) — are completely digital. Read more about the change and get tips on how to access the new flipbook digital issues.

SPONSORED REPORT

Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.