The PCAOB has issued an alert to discuss certain significant matters relating to the application of PCAOB standards relevant to auditing the implementation of the new accounting standard for revenue from contracts with customers. The practice alert is intended to facilitate auditors’ consideration of these matters in interim reviews of issuers and year-end audits of issuers and brokers and dealers.
The issuance of the alert means public companies can expect increased focus on auditors’ procedures for third quarter Form 10-Qs and in connection with year-end audits. The alert focuses on the following topics:
- auditing management’s transition disclosures in the notes to the financial statements,
- auditing transition adjustments,
- considering internal control over financial reporting,
- identifying and assessing fraud risks,
- evaluating whether revenue is recognized in conformity with the applicable financial reporting framework, and
- evaluating whether the financial statements include the required disclosures regarding revenue.
For most public companies, the immediate impact of the alert will be an increased focus on transition disclosures in the notes to the financial statements. The alert notes the following examples of review procedures directed toward a company’s transition disclosures:
- Inquiring about the company’s implementation progress and the anticipated effects of the new revenue standard on the company’s financial statements. Auditors may find it necessary to make inquiries of company personnel outside of the accounting function to obtain such information.
- Obtaining evidence about whether interim transition disclosures about the new revenue standard agree or reconcile with supporting data in the company’s records, such as management’s reports to the audit committee about the anticipated effects of the new revenue standard.