New rules about disclosing the name of the engagement partner—as well as a continued regulatory focus on internal control over financial reporting—are some of the main topics auditors need to consider during the 2016 audit cycle, according to new risk alerts published Tuesday by the Center for Audit Quality (CAQ).
The CAQ, which is affiliated with the AICPA, issued alerts for auditors in general, and for auditors of brokers and dealers. The alerts identify some of the more judgmental or complex audit areas for the 2016 audit cycle.
The member alerts highlight certain areas, but they are not meant to be definitive or all-inclusive and are intended to be read in conjunction with applicable rules, standards, and guidance in their entirety.
Issues highlighted for auditors in general were:
Improving transparency through disclosure of the engagement partner and certain other participants in audits. New PCAOB rules require registered public accounting firms to file a new Form AP with the PCAOB to identify engagement partners and other accounting firms participating in the audit. The PCAOB has issued staff guidance for complying with the rules.
Improper alteration of audit documentation. A PCAOB practice alert issued in April warned of severe consequences for improperly altering audit documentation in connection with a PCAOB inspection or investigation.
Effective communication with audit committees. PCAOB standards encourage effective two-way communication between the auditor and the audit committee. Preliminary 2015 inspection results revealed shortcomings in communication related to the audit strategy, the timing of the audit, and significant risks the audit firms identified.
Assessing and responding to risks of material misstatement. It’s essential for auditors to perform substantive procedures for each relevant assertion of each significant account and disclosure, regardless of the assessed level of control risk, according to the CAQ report.
Internal control over financial reporting. Successful implementation of the new revenue recognition standard issued by FASB and the International Accounting Standards Board will depend on effective internal control over financial reporting, SEC Chief Accountant James Schnurr has said. This is just one area of internal control over financial reporting that will require close attention from auditors.
Segment identification and disclosure. Auditors were encouraged in a December 2015 speech by Helen Munter, director of the PCAOB’s Division of Registration and Inspections, to consider how an issuer identifies the chief operating decision-maker and determines its operating segments and its reportable segments.
Going concern. Although a new FASB standard for management’s going concern disclosures has been issued, a determination by management that no disclosure is required is not conclusive as to whether an explanatory paragraph on going concern is required in the auditor’s report, according to the CAQ alert.
The alert for auditors of brokers and dealers focuses on the more judgmental or complex audit areas, as these audits have been a continued subject of focus for the PCAOB.
—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.
