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On the Horizon -- New PCAOB standard to significantly alter auditor’s report

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Contents

FASB restructures select Codification content
AICPA

   FinREC releases revenue recognition implementation working drafts
   New audit and accounting guide on cybersecurity risk management issued
   Updated audit and accounting guides published
PCAOB
   New standard on auditor’s report adopted
   New standard on auditing accounting estimates proposed
   Amendments to standard on use of work of specialists proposed
   Dates for forums for broker-dealer auditors announced
CAQ
   White paper on cybersecurity risk issued
   Alert published on planning for auditors of brokers and dealers




FASB restructures select Codification content

The FASB recently restructured the content in ASC 952, Franchisors, to simplify the guidance, and in the future plans to consolidate the guidance on presenting the statement of comprehensive income in ASC 220, Comprehensive Income, which currently appears in both ASC 220 and ASC 225, Income Statement.

The FASB also announced that it will be making further improvements to restructure additional content in the Codification that will primarily affect the industry topics. The restructuring will simplify the structure of the Codification’s content, but will not change any existing guidance.

The changes have been, and will be, effected through maintenance updates to the Codification, not through ASUs. Information on the changes will be available in a link to the status table of the affected topic or subtopic.




AICPA

FinREC releases revenue recognition implementation working drafts

The AICPA Financial Reporting Executive Committee (FinREC) released working drafts of 12 revenue recognition implementation issues for comment. This latest set of working drafts discusses considerations about, and provides illustrative examples for, asset management, engineering and construction contractor, gaming, health care, hospitality, and software entities implementing the new revenue standard.

These implementation issues will be added to the AICPA audit and accounting guide on revenue recognition after the review of public comments and finalization of the issues.

The comment period for these working drafts ends August 1.

New audit and accounting guide on cybersecurity risk management issued

The AICPA issued Audit and Accounting Guide, Cybersecurity Risk Management, providing guidance to practitioners engaged to examine and report on an entity’s cybersecurity risk management program using the AICPA’s recently released cyber risk management criteria and revised trust services criteria. These engagements would be performed under the AICPA’s clarified attestation standards, which were effective on May 1 of this year.

Updated audit and accounting guides published

The AICPA updated the following Audit and Accounting Guides to address recent practice issues related to the application of AU-C Section 800, Special Considerations – Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks:

  • Life and Health Insurance Entities
  • Property and Liability Insurance Entities



PCAOB

New standard on auditor’s report adopted

The PCAOB adopted a new auditing standard, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards. The new standard and related amendments require auditors to

  • Discuss critical audit matters (CAMs)—matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve challenging, subjective, or complex auditor judgment
  • Disclose the tenure of the auditor, specifically, the year in which the auditor began serving consecutively as the company’s auditor
  • Include the phrase “whether due to error or fraud” in the description of the auditor’s responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements

The final standard applies to audits conducted under PCAOB standards. Communication of CAMs is not required for audits of emerging growth companies; registered brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans.

The standard retains the pass/fail model of the existing auditor’s report.

The new requirements are to be phased in as follows:

  • New auditor’s report format, tenure, and other information – Audits for fiscal years ending on or after December 15, 2017
  • Communication of CAMs for audits of large accelerated filers – Audits for fiscal years ending on or after June 30, 2019
  • Communication of CAMS for audits of all other companies – Audits for fiscal years ending on or after December 15, 2020

The new standard is subject to approval by the Securities and Exchange Commission.

New standard on auditing accounting estimates proposed

The PCAOB proposed a new standard, Auditing Accounting Estimates, Including Fair Value Measurements and Proposed Amendments to PCAOB Auditing Standards, to establish a uniform, risk-based approach to auditing estimates, including fair value measurements. The proposed standard emphasizes the need for applying professional skepticism and dedicating greater attention to potential management bias when auditing accounting estimates. The proposed single standard would include a special topics appendix addressing the fair value of financial instruments, including the use of information from pricing sources.

The proposed standard would replace AS 2501, Auditing Accounting Estimates; AS 2502, Auditing Fair Value Measurements and Disclosures; and AS 2503, Auditing Derivatives Instruments, Hedging Activities, and Investments in Securities. The updated and retitled standard would be AS 2501, Auditing Accounting Estimates, Including Fair Value Measurement.

The comment period on the proposed standard ends August 30.

Amendments to standard on use of work of specialists proposed

The PCAOB proposed amendments to the standard on the use of the work of specialists. Proposed Amendments to Auditing Standard for Auditor’s Use of the Work of Specialists strengthens the requirements for evaluating the work of a specialist employed or engaged by a company and uses a risk-based approach to the supervision and evaluation of the work of a specialist employed or engaged by the auditor.

The proposal amends AS 1105, Audit Evidence, and AS 1201, Supervision of the Audit Engagement, and replaces and retitles AS 1210, Using the Work of a Specialist.

The comment period on the proposed amendments ends August 30.

Dates for forums for broker-dealer auditors announced

The PCAOB announced dates for the 2017 Forums for Auditors for Broker-Dealers. The 2017 forums will


  • Discuss inspection observations and trends, enforcement matters, and auditor independence
  • Provide an update on auditing standards
  • Feature a panel discussion on exercising professional skepticism
  • Present case studies

The 2017 dates and locations are as follows:

  • October 20 – Las Vegas, Nevada
  • December 7– Jersey City, New Jersey

The forums are live meetings and open to members of PCAOB-registered firms that audit smaller broker-dealers. There is no fee to participate, but preregistration is required and space may be limited. The Las Vegas forum will be streamed live.



CAQ

White paper on cybersecurity risk issued

The Center for Audit Quality (CAQ) issued a new white paper, “The CPA’s Role in Addressing Cybersecurity Risk – How the Auditing Profession Promotes Cybersecurity Resilience,” detailing how the auditing profession can help companies and the capital markets address the growing challenges of cybersecurity. The paper explores new business services CPAs can provide as a result of the development of the new cybersecurity reporting framework described in the AICPA Audit and Accounting Guide (see “New audit and accounting guide on cybersecurity risk management issued” above).

Alert published on planning for auditors of brokers and dealers

The CAQ also issued Alert 2017-02, “Audit Planning Alert for Auditors of Brokers and Dealers.” The alert poses questions for auditors to consider in the planning of audit and attestation engagements, and identifies and discusses some of the more judgmental and complex audit and attest areas, including areas that have been the subject of attention and focus of the PCAOB’s interim inspection program.



© 2017 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.