The Center for Audit Quality has given auditors a new alert on where they should focus their most intensive audit attention this year, given regulatory and market developments that have heightened risk for both companies and auditors alike.
Professional skepticism and internal control over financial reporting top the CAQ’s list of areas where auditors should remain vigilant, along with risk assessments and audit planning, supervision of other auditors and multi-location engagements, testing of data and reports prepared by issuers, cyber-security, revenue recognition, accounting estimates, and related parties.
Those are the same areas the Public Company Accounting Oversight Board has been pounding auditors to button down during inspections and other regulatory guidance the past few years. In fact, the PCAOB highlighted those issues in an inspection brief published recently to explain where it is devoting its greatest attention during regulatory inspections.
The CAQ also published a separate alert for auditors of brokers and dealers, another audit areas that falls under the PCAOB’s authority. “These alerts reflect the public company auditing profession’s strong commitment to continuously strengthening audit quality,” said Cindy Fornelli, executive director of the CAQ, in a statement. “As risks and regulatory priorities evolve, the CAQ will continue to update these resources regularly for the benefit of our members and others.”
With respect to internal controls, the CAQ is reminding auditors of the deficiencies most often identified in inspection reports. Those include selecting the appropriate control to test to support the auditor’s conclusion about whether the company’s controls sufficiently address the risk of misstatement, responding to the risk of fraud or misstatement by testing the design effectiveness, and testing the operating effectiveness of controls. The CAQ is reminding auditors to review the PCAOB’s Staff Audit Alert No. 11 for a brush up on what the PCAOB will be expecting when it inspects the next round of audit reports.
The CAQ also reminded auditors to be sure they are ready to comply with a new auditing standard that takes effect with 2015 year-end audits on related parties. The standard instructs auditors to take a closer look at how companies identify and disclose their transactions with related parties, their significant unusual transactions, and their financial relationships and transactions with executive officers.