Auditors preparing for their year-end audits are planning to dig deep into new accounting, but they will beat up on internal controls as well.

As calendar-year companies approach their year-end close, audit firms are prepping teams for the big issues they need to scrutinize closely in their 2018 year-end audits. “By far, the No. 1 thing we will consider as companies close their books is how they report under new accounting standards,” says Phillip Austin, a partner at audit firm BDO USA.

Revenue recognition is at the top of that list. Accounting Standards Codification Topic 606 took effect in January, giving companies a new, five-step method for determining when and in what amounts to recognize revenue in financial statements. Calendar-year companies have completed three quarterly filings, and now they’re facing their first full year report reflecting the new standard.

“Where possible, we’ve been doing audit procedures throughout the year,” says Mark Winiarski, a shareholder at audit firm Mayer Hoffman McCann. “In our integrated audits, we’ll be looking at the control structures around ASC 606 implementation as well as the processes throughout the year.”

Dave Sullivan, an audit partner at Deloitte & Touche, says auditors will be looking for companies to show more advanced disclosures under ASC 606. “As the SEC has been reviewing disclosures throughout the year, the staff has asked questions about the accounting, but they’ve also expressed disappointment about the disclosures,” he says. “So we expect to see the disclosures become a little more robust.”

While revenue recognition may have been the biggest standard to take effect in 2018, it wasn’t the only new accounting standard this year. Auditors will be looking for compliance with other new standards as well, including new rules under ASC 825 on recognizing and measuring financial instruments, says Winiarski. “We’ll be looking at changes for equity and debt securities—how those have been measured and presented in financial statements,” he says.

Auditors will also be looking at readiness for the next big accounting standard, the recognition on the balance sheet of leases under ASC 842, which takes effect Jan. 1. The big area of scrutiny at year-end will be compliance with Staff Accounting Bulletin No. 74, which requires companies to disclose the expected impact of new accounting rules before they take effect.

“If you’re a calendar-year company and you have to adopt at the beginning of January, we expect to see those foreshadowing disclosures,” says Sullivan. Many companies have complied with SAB 74 at various stages leading up to new accounting by disclosing they were evaluating how they would be affected.

That won’t cut it in year-end filings, which fall only one quarter before new presentation under the new rules. “We expect those to have a lot more detail at year-end,” says Sullivan.

In internal surveying of audit engagement teams, auditors are generally finding companies to be prepared for the new standards, says Sullivan. “There have been a lot of manual workarounds because of the lack of IT systems to support the adoption, so it’s been a heavy lift for companies to understand their lease population and get the accounting done,” he says.

Jim Burton, partner-in-charge of audit methodology and standards at Grant Thornton, says auditors will be especially focused on the completeness of the lease population. “In certain industries where there are heavy leasing activities, there are a lot of contractual activities with vendors that could include embedded leases,” he says.

Auditors will also focus on what companies have established to track and monitor leases going forward. “For the vast majority, the accounting isn’t overly complex,” says Burton. “It’s the tracking and monitoring systems where companies have had the biggest challenges.”

Although further on the horizon, auditors may also ask companies questions at the end of 2018 about their preparations for ASC 326, a new standard on credit losses, which takes effect at the beginning of 2020 for calendar-year companies. Requiring a more forward-looking approach to the recognition of loan losses, the new current expected credit losses model, or CECL, is widely regarded to be the biggest change in bank accounting in decades.

Many financial institutions are expected to have their CECL models operating throughout 2019 so they can produce parallel reporting under both new and old standards as a way of transitioning to the new accounting. Auditors will focus on what management is disclosing regarding the expected effects of CECL, says Sullivan.

“Most foreshadowing disclosures have not included details on the impact of adoption yet,” says Sullivan. “We’ll see what we see, but we do audit those disclosures. What is management disclosing? And what do they have to support the assertions they’ve made?”

Accounting for taxes will get some special scrutiny at year-end in light of the Tax Cuts and Jobs Act, says Austin. The Securities and Exchange Commission gave companies some time to work out how they would be affected by the massive tax reform measure under Staff Accounting Bulletin No. 118, but that guidance expires in the fourth quarter. “SAB 118 gave companies a one-year estimation and disclosure period,” he says. “Companies need to have completed all their measurement and recognition processes.”

The perennial concerns about internal control will still be present in this year’s audit cycle, says Michael Loritz, shareholder at Mayer Hoffman McCann. According to an inspections outlook published by the Public Company Accounting Oversight Board, inspectors plan to focus on areas where firms have struggled with recurring deficiencies, so that suggests where auditors will continue to focus, he says.

“The biggest concern, profession-wide, is the continued inspection findings in the area of management review controls, particularly the testing of the design of the control,” says Loritz. “What is the control owner doing when performing that review? How in-depth is the review? How knowledgeable is the individual? What procedures have been done to validate that the review is at a sufficient level to conclude the control is operating effectively?”

The PCAOB inspection outlook also indicates the board will be focused on auditor independence issues, cyber-security risks, software audit tools, and new accounting standards, among other areas. Loritz is also reminding companies to double-check their work on financial instruments under ASC 825. With all the focus in 2018 on bigger accounting changes, “that seems to be a little bit of a forgotten standard,” he says.

Peter Bible, chief risk officer at audit firm EisnerAmper, says companies would be wise to question their auditors about their own inspection experience in the past year. With the results of those inspections not yet visible to the public, querying auditors is the only way to know what any specific firm might be focusing on as a result of its own inspection findings. “What have they learned coming out of their last inspection cycle?” Bible says. “They’ll be adjusting their audit procedures for that.”