In December 2020, during the AICPA Conference on Current SEC and PCAOB Development, thought on audit best practices were discussed. By paying close attention to the impacts of a disrupted year. Our auditing team at GCS Malta are here to outline a few highlights that were discussed.
Comply with standards in procedures and documentation.
PCAOB’s audit inspections in 2021 will continue to focus on reviewing how audit professionals are completing and documenting procedures in compliance with standards. Megan Zietsman, a PCAOB member, said, “For example, in some cases, obtaining evidence may comprise a copy in digital form, given the challenges of not being able to put your hands on a physical piece of paper”. “And that may give rise to the need for consideration of procedures to support the validity of such evidence, and we’ll be looking to see how auditors have responded to those kinds of challenges.” In addition, inspections will focus more intensely on industries most adversely affected during the pandemic, including transportation, entertainment, hospitality, manufacturing, and retail. Areas such as remote auditing, time constraints, availability of information, and access to management that may have been affected by the pandemic also will receive increased attention.
Take care in examining forecasts.
Like many other industries, the pandemic imposed challenges to forecasts and requires a higher level of importance for management to document reasons for arriving at its projections. Auditors will have to ensure that the documentation has been prepared correctly and supports management’s assumptions.
Assess risk carefully.
During these uncertain times of the pandemic, performing robust risk assessment procedures and understanding the client’s business is very important. Director of the PCAOB’s Division of Registration and Inspections, George Biotic, said this includes understanding the impact of known and/or potential changes due to COVID-19 and other economic challenges.
Include entity-specific information in critical audit matters disclosures.
Analyses of the first critical audit matter (CAM) disclosures by auditors of public companies show that some of the revelations contain “boilerplate” language that doesn’t provide much helpful information to investors. SEC Professional Accounting Fellow Jeffrey Joseph said at the conference that auditors’ reports are more effective when they use entity-specific information. “Such language provides useful information to the users of the financial statements,” he said. “For example, we have observed instances, where the wording of the CAM describes the specific input and/or assumption driving a principal consideration, which we believe, are useful when evaluating the judgments made in an audit.”
Watch for incentives that may lead to fraud.
According to Kristin Rivera, CPA/CFF, the global forensics leader for PwC LLP, executives, directors, and auditors need to be alert to how mid-level employees perceive the pandemic’s unique pressures. She advised management to be cautious when announcing directives to motivate employees to take the steps needed to resolve the crisis. “We may need to be extra cautious of how our words are being interpreted and implemented,” Rivera said. “People feel an obligation to help the company pull through.”
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