In the recent edition of the Journal of Accountancy, the auditing of internal control over financial reporting, is listed as a topic that has received a lot of attention from the PCAOB this year, and is one of the key risk factors for the 2013 audit cycle, according to a new Center for Audit Quality (CAQ) alert.
A summary of the six key areas of potential risk in auditors’ work are:
1. Internal control over financial reporting. The CAQ report summarizes areas of focus in the audit practice alert. “Understanding the flow of transactions and identifying the risks of material misstatement—including the types of potential misstatements that can occur and the likely sources of those potential misstatements—is necessary for the auditor to select appropriate controls to test and to evaluate whether those controls adequately address the risks,” the report says.
2. Professional skepticism. The alert says that auditors should maintain a questioning mind and have the confidence to challenge management representations after gathering and evaluating appropriate evidence.
3. Engagement quality review. Audit firms should take steps to make sure that engagement quality reviews identify the audit deficiencies they are meant to detect.
4. Accounting estimates, including fair value estimates.
5. Substantive analytical procedures. According to the CAQ report, substantive analytical procedures may be effective tests for relevant
assertions related to certain accounts, however these procedures may not always be effective in providing the appropriate level of assurance.
6. Inaccurate or omitted disclosures. The CAQ report says that auditors should communicate to management or the audit committee whether the financial statements are presented fairly in all material respects.
Remember, your license is your livelihood.
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