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PCAOB Issues New Practice Alert on Auditing Revenue
Practical Law Legal Update 8-580-7866 (Approx. 3 pages)
PCAOB Issues New Practice Alert on Auditing Revenue
by Practical Law Corporate & Securities
| Published on 10 Sep 2014 • USA (National/Federal) |
The Public Company Accounting Oversight Board (PCAOB) issued a new Practice Alert that highlights for auditors the requirements for auditing revenue under PCAOB standards.
On September 9, 2014, the Public Company Accounting Oversight Board (PCAOB) issued Staff Audit Practice Alert No. 12 to highlight for auditors the requirements for auditing revenue under PCAOB standards. The PCAOB issued the Alert after observing significant audit deficiencies during its inspections. Revenue has consistently been one of the most common areas for audit deficiencies identified in PCAOB inspection reports.
The Alert discusses the following requirements in PCAOB standards that are relevant to the significant audit deficiencies frequently found during inspections:
- Testing the recognition of revenue from contractual arrangements.
- Evaluating the presentation of revenue (gross versus net revenue).
- Testing whether revenue was recognized in the correct period.
- Evaluating whether the financial statements include the required disclosures regarding revenue.
- Responding to risks of material misstatement due to fraud associated with revenue.
- Testing and evaluating controls over revenue.
- Applying audit sampling procedures to test revenue.
- Performing substantive analytical procedures to test revenue.
- Testing revenue in companies with multiple locations.
The PCAOB suggests that auditors should:
- Take note of matters discussed in the Alert when planning and performing audit procedures over revenue.
- Revisit their audit methodologies and the implementation of those methodologies to assure they are following PCAOB auditing standards in the area of auditing revenue.
- Consider whether additional training of their auditing personnel or other steps are needed.
The PCAOB also suggests that:
- The engagement partner and senior engagement team members take action to ensure that engagement teams appropriately implement these auditing standards throughout the audit.
- Engagement quality reviewers focus on these matters when conducting their engagement quality reviews.
- Audit committees discuss with their auditors their approach to auditing revenue, including the matters addressed in the Alert.
The Alert is intended to highlight areas of frequent deficiency, but it does not impose any new rules.
For general information on auditing, see Practice Note, Auditing: An Overview.