Disclosures for New Accounting Standards
On June 28, 2017, the CAQ issued Alert 2017-03, on SEC SAB 74 disclosures, “SAB Topic 11.M – A Focus on Disclosures for New Accounting Standards,” to assist in evaluating whether management’s disclosure of the potential effects of recently issued accounting standards are adequate. The tool addresses what SAB 74 disclosures should communicate to users of financial statements, progress on implementing the standards, internal control considerations, and auditor responsibilities.
Preventing Misstatements in Complex Accounting Areas
On March 16, 2017, the Anti-Fraud Collaboration, which comprises the CAQ, Financial Executives International, the Institute of Internal Auditors, and the National Association of Corporate Directors, released a report, “Addressing Challenges for Highly Subjective and Complex Accounting Areas,” which compiles recommendations for ways to help deter financial reporting misstatements due to error or fraud.
Audit committee members, corporate executives, internal and external auditors, and regulators met at two 2016 workshops that explored certain SEC enforcement actions where the SEC asserted that there were serious issues with companies’ ICFR. Based on these discussions, the report provides recommendations on improving accounting policies, internal controls, and staffing for highly subjective and complex areas, including a specific focus on revenue recognition.
In addition, the Anti-Fraud Collaboration hosted a webcast on July 11, 2017, to share recommendations on how companies can improve accounting policies and internal controls in order to detect and deter fraud and reduce the number of financial restatements.
External Audit Assessment Tool
The CAQ, in conjunction with the Audit Committee Collaboration, released, on April 18, 2017, an updated version of its “External Auditor Assessment Tool: A Reference for U.S. Audit Committees,” to help audit committees, particularly those serving public companies, evaluate the external auditor, including appointing, overseeing, and determining compensation. The tool does not offer a one-size-fits-all approach; instead, it is a comprehensive yet scalable resource that encourages proactive efforts by audit committees.
The tool includes sample questions in three areas:
- The auditor’s quality of services and sufficiency of resources
- The auditor’s quality of communication and interaction
- The auditor’s independence, objectivity, and professional skepticism
A sample form and rating scale are included and can be used to collect input from company personnel about the external auditor. Additional resources are aimed at audit committees and others charged with governance.
The tool was last issued in June 2015; updates in the 2017 edition address:
- Changes in accounting standards and potential risk areas, such as implementation of the new revenue recognition standard
- Use of non-GAAP financial information
- Ongoing cybersecurity concerns
Cybersecurity Risks
On the heels of the American Institute of CPAs’ release of the cybersecurity risk management reporting framework and related attest guide (see the next section), the CAQ released a white paper, “The CPA’s Role in Addressing Cybersecurity Risk,” on May 24, 2017. The paper examines today’s cybersecurity risks and threats and how the auditing profession can improve stakeholder confidence in cybersecurity information provided by management with the use of the framework.
Included in the paper are summaries of the significant components and objectives of the framework as well as frequently asked questions on the framework. The white paper notes that in the current technological environment, organizations face varying cyberthreats, and stakeholders must gather information and communicate with each other about cybersecurity. It also notes that the CPA profession can address these issues through its values and experience in auditing IT controls and providing independent assessments.