Potential areas of risk for the 2017 audit cycle

By Ken Tysiac

Some of the more judgmental or complex audit areas that practitioners may encounter during the 2017 audit cycle are discussed in a Center for Audit Quality (CAQ) alert published Wednesday.

The CAQ, which is affiliated with the AICPA, published Select Auditing Considerations for the 2017 Audit Cycle and also Select Auditing Considerations for the 2017 Audit Cycle for Brokers and Dealers.

In the alert that is not specifically for broker-dealer audits, the CAQ focuses on auditing considerations related to:

  • Auditor independence. This has been a consistent area of focus for PCAOB inspections staff, who regularly assess firms’ independence quality controls.
  • Multinational audits. It is important to inquire about the professional reputation and independence of the other auditor, according to the alert.
  • Transitioning to new accounting standards. Organizations will be adopting new FASB standards for revenue recognition, leases, and credit losses in coming years, creating new challenges for auditors as well as financial statement preparers.
  • Audit areas potentially affected by economic factors. Fluctuation in fuel prices, the search for higher investment returns in a market with low interest rates, and the fast pace of mergers and acquisitions are some of the environmental factors preparers are facing.
  • Recurring audit deficiencies. Areas that have received continued focus from PCAOB inspections staff include internal control over financial reporting; identifying, assessing, and responding to risks of material misstatement; and accounting estimates, including fair value measurements.
  • Financial reporting areas. Potential areas of risk include auditors’ assessment of management’s going concern evaluation, and the audit procedures to evaluate and test management’s assertion related to the indefinite reinvestment of large and growing undistributed earnings in foreign jurisdictions.
  • Increasing transparency through new disclosures. New PCAOB rules require disclosure of the engagement partner and certain other participants in audits on the new Form AP, Auditor Reporting of Certain Audit Participants.
  • Other considerations. These include considerations related to engagement quality review, improper alteration of audit documentation, firm software audit tools, cybersecurity risks, and the new auditor’s reporting model (pending SEC approval).

The alert with considerations specific to auditors of brokers and dealers presents questions for auditors to consider as they plan and execute both their audit and attestation engagements. The alert covers some of the more judgmental or complex areas of the audit and attestation engagements, including some of those areas where PCAOB inspections staff continue to find deficiencies.

The areas highlighted include auditor independence; risk of material misstatement due to fraud; revenue recognition; financial statement presentation and disclosure; related-party transactions; auditing information produced by a service organization; supplemental information; examination engagements; review engagements; engagement quality reviews; and Securities Investor Protection Corporation Rule 600.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.


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