Alert on Risk Assessment, Response Published
The Public Company Accounting Oversight Board has published a Staff Audit Practice Alert to assist auditors in identifying matters related to the current economic environment that might affect the risk of material misstatement in financial statements and, therefore, require additional audit attention.
“Today’s volatile economic environment may affect companies’ operations and financial reporting, which has implications for audits,” said PCAOB Chairman James R. Doty. “The alert reminds auditors of their responsibilities under these conditions.”
Staff Audit Practice Alert No. 9: Assessing and Responding to Risk in the Current Economic Environment, updates Staff Audit Practice Alert No. 3, which was issued in December 2008, in light of current global economic conditions and recent enhancements to PCAOB standards.
Many of the matters discussed in Practice Alert No. 3, Audit Considerations in the Current Economic Environment — including fair value measurements, accounting estimates, going concern, and financial statement disclosures — continue to be critical in audits of 2011 financial statements.
Certain of the PCAOB standards referenced in that alert regarding assessment of, and response to, risk, however, were superseded in 2010 with the Board’s adoption of eight new risk assessment standards (Auditing Standard Nos. 8-15).
“This practice alert discusses issues posed by the current economic situation and highlights certain requirements in the new risk assessment standards. Auditors should be alert to the new requirements contained in the risk assessment standards and how those requirements relate to audits performed in the current economic climate,” said Martin F. Baumann, PCAOB Chief Auditor and Director of Professional Standards.
The alert is organized into four sections; considering the impact of economic conditions on the audit; auditing fair value measurements and estimates; the auditor’s consideration of a company’s ability to continue as a going concern; and auditing financial statement disclosures.
Staff Audit Practice Alerts are published by the PCAOB to highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws.
Auditors should determine whether and how to respond to these circumstances based on the specific facts presented, PCAOB said.
The statements contained in Staff Audit Practice Alerts do not establish rules of the Board and do not reflect any Board determination or judgment about the conduct of any particular firm, auditor, or any other person.