As we’ve seen in previous articles, the pandemic has affected us in many ways. However, specific challenges rose, especially with FASB’s new revenue recognition standard for auditing. These dual challenges are for auditors of private company financial statements.

“The standard itself requires numerous new judgments, estimates, and disclosures requiring close auditor attention to some of the most important metrics their clients’ report.”

“The pandemic makes auditing revenue recognition even more difficult because companies’ operations, processes, and controls have changed in many cases.”

The auditors at GCS Malta provide a few tips to help you overcome these challenges in the following write up.

Make sure your client did the work.

Many clients disregard the five-step revenue recognition process. Mainly because they consider it complicated and believe it will not impact their financial statements. However, ensuring statements conform with GAAP, the entire process needs to be followed. In addition, many admit they appreciate the insights gained into the processes and controls over contracts when going through the process.

Empathy while maintaining professionalism.

This tip requires delicate people skills, where auditors need to demand vigilance and scrutiny due to the new standard and the pandemic, whilst also understand that clients may be struggling.

Understand the company.

It’s essential to understand your client, the company, its processes, the business model and the industry it operates in. Don’t just liaise with the finance department; however, speak to other departments that are part of negotiating contracts and fulfilling orders to understand the process thoroughly.

Variable prices demand extra attention.

Determining and allocating the transaction price may be difficult for clients who use variable pricing based on the number of items purchased or discounted. Auditors must determine how the transaction process was developed. For such, sales returns and allowances may need to be considered too.

Prepare for pandemic-related judgement questions.

The revenuehttps://www.journalofaccountancy.com/news/2020/nov/revenue-recognition-tips-for-successful-auditing.html recognition standard is principle-based and relies on new judgements and estimates. They will be more challenging to evaluate due to the pandemic. Hence, auditors need to be more vigilant in verifying the accounting is performed correctly.

Why GCS Malta?

The professional auditors at GCS Malta have vast experience in both external and internal auditing to guarantee all clients that their financial statements will be examined to adhere to the Maltese legislation. Contact us today for more information.

Article written by Colleen Azzopardi.