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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.

You can read a text version of the story here, and see an executive summary of the CAQ report here.

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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 don’t provide sufficient documentation to show that they’ve 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 you’re working with other auditors – whether they’re 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 company’s reporting systems -- they also need to assess the risk of material misstatement in the wake of a cyber-incident, including evaluating a company’s accounting for known cybersecurity-related losses, and assessing the company’s financial statements and disclosures.
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7. Revenue recognition

There are significant risks here that require special audit consideration – among other things, it’s 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 management’s 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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Fraud, audit, auditor.

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 company’s financial relationships and transactions with its executive officers.
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