The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
Auditors must approach the new revenue recognition rule with no qualms about challenging management’s assumptions, Patrick McNamee, PCAOB’s deupty chief auditor advises.
McNamee reminded auditors of their duty to remain independent, exercise professional skepticism, report to the audit committee and to challenge management’s assumptions.
The new revenue recognition standard has moved from a rules-based standard to a principles-based standard. In its first year, there will be many different judgments and differing views. Auditors must be prepared for that, McNamee told a May 8 Deloitte/Bloomberg BNA conference on revenue recognition.
McNamee cautioned auditors that their professional responsibility to evaluate financial statements for error or fraud means that in this period of uncertainty, auditors can’t capitulate to management’s judgments.
Under the new principles-based rule, auditor responsibility to apply professional skepticism to reviews of financial statements has increased. He referred auditors to Staff Practice Alert No. 10: Maintaining and Applying Professional Skepticism in Audits, which he said was “more relevant and urgent today” than when written in 2012.
McNamee said management very often wants to keep the old accounting. The auditor’s professional duty requires it to ask if management has interpreted the new standard correctly. Studies show that auditors often don’t challenge management because they want to avoid conflicts or negative consequences, he said.
The newness of the standard will lengthen management’s financial statement preparation period, which will “squeeze auditors” in getting ready to review them, McNamee explained.He cautioned auditors against rushing through their evaluation by looking at the easy confirming evidence, which comes from within the company, rather than question outside sources that might take longer but might provide a different view.
The revenue recognition standard has changed but auditing rules haven’t. McNamee told auditors to read:
“The Board’s staff believes that the auditing matters discussed in this practice alert are likely to continue to have relevance to auditing revenue under the new accounting standard,” the alert said.
To contact the reporter on this story: Laura Tieger Salisbury in Washington at LSalisbury@bna.com
To contact the editor responsible for this story: S. Ali Sartipzadeh at email@example.com
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)