For instance, with respect to revenue recognized under Topic 606, it will be important for auditors to obtain an understanding of the controls and procedures management uses to identify the contracts that meet the required criteria defined in each of the five steps described in the standard. There may be instances where controls changed early in 2020 to accommodate remote operations and virtual conditions.Ī thorough understanding of the facts and considerations for the client's process aids the auditor in assessing the specific risks for that client and developing further audit procedures. In many cases, the client's environment and internal control were affected by the global coronavirus pandemic. Further, peer review matters for further consideration (MFC) data also indicates that auditors are challenged with assessing client risks associated with Topic 606.Īuditors are required under AU- C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, to identify and assess the risks of material misstatement in their client's financial statements by obtaining an understanding of the entity and its environment, including its internal control. The recent peer reviewer survey supports this in that 21% of the respondents identified the assessment of a client's risks of material misstatement associated with recognizing revenue under Topic 606 as one of the top audit challenges. Historical data from domestic and international practice monitoring programs indicates that assessing risk associated with revenue recognition is a common challenge for auditors. The biggest Topic 606- related challenges were identified as the following: Assessing associated risks Over 230 peer reviewers responded to the survey to share what they've seen or experienced relative to the new accounting standard. To learn where challenges exist for entities and their auditors, the AICPA conducted a survey of peer reviewers, asking them to identify the areas where their firm or their peer review clients have experienced challenges in auditing revenue recognition. 15, 2020.īut while some entities opted to defer implementation of Topic 606, many others continued their efforts with implementing the requirements of the standard. 15, 2019, and for interim reporting periods within annual reporting periods beginning after Dec. Through this action, private companies and not- for- profit organizations that had not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Topic 606 were permitted to apply the standard for annual reporting periods beginning after Dec. Many preparers and auditors received a bit of a reprieve when FASB granted a one- year effective date delay for certain companies and organizations applying FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers. The depth and breadth of FASB's enormously consequential revenue recognition standard presented challenges to auditors as well as those who prepare financial statements.įeedback from peer reviewers demonstrates the areas related to revenue recognition that have caused the most difficulty for practitioners.
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