Audit Risks to Look Out For
October 22, 2015 11:31 AM
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Things to Watch Out For
The Center for Audit Quality recently published a report, Select Auditing Considerations for the 2015 Audit Cycle, that alerted auditing firms to nine potential risk areas they should look out for, based in part on concerns identified by the Public Company Accounting Oversight Board.
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1. Professional Skepticism
Recent PCAOB inspection findings have noted failures to exercise professional skepticism including a questioning mind and a critical assessment
of the evidence.
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2. Internal Control Over Financial Reporting
In particular, auditors need to be careful about selecting the right controls to test, about bearing in mind fraud and error detection in testing those controls, and in checking the operational effectiveness of the controls.
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3. Risk Assessment and Audit Planning
A common deficiency is failing to adequately handle risks of material misstatement, both in terms of identifying potential risks in a given audit, and in then testing effectively for those risks. The PCAOB also noted that some auditors dont provide sufficient documentation to show that theyve been complete, thorough and timely in considering all applicable risks.
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4. Supervision of Other Auditors and Multi-Location Audit Engagements
When youre working with other auditors whether theyre member firms or independent you want to adequately address risks, and sufficiently supervise the work of their engagement teams.
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5. Testing Issuer-Prepared Data and Reports
How well are you testing the accuracy and completeness of what management gives you? Brush up on Auditing Standard No. 15, Audit Evidence, to make sure your process is up to snuff.
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6. Cybersecurity
Not only should auditors be aware of the risk that a cyber-breach might have led to tampering with a companys reporting systems -- they also need to assess the risk of material misstatement in the wake of a cyber-incident, including evaluating a companys accounting for known cybersecurity-related losses, and assessing the companys financial statements and disclosures.
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7. Revenue recognition
There are significant risks here that require special audit consideration among other things, its often an area of focus in PCAOB firm inspections.
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8. Auditing Accounting Estimates, Including Fair Value Measurements
Estimates are always trouble, and auditors testing of managements accounting estimates, including fair value measurements have been an area of focus in recent PCAOB inspections. Many deficiencies revolved around testing of the key data and significant assumptions that management used to develop the estimates.
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9. Related Parties and Significant Unusual Transactions
Take a look at Auditing Standard No. 18, Related Parties, and brush up on the amendments to other standards that discuss the performance requirements surrounding related-party transactions, significant unusual transactions, and a companys financial relationships and transactions with its executive officers.
