PCAOB Sends Wake Up Call to Auditors Over Tasks on Losses and Disclosures
Reports that emerged in fall revealing alleged misrepresentations from companies with securitization loans that they sell have prompted the Public Company Accounting Oversight Board to remind the auditors of the audit practice that they should adopt when auditing their companies’ loss contingencies and disclosures, among other things.
PCAOB’s Staff Audit Practice Alert released December 20 also requires companies to repurchase affected mortgages following the reports that these misrepresentations have created exposures for banks amounting to $52 billion in addition to losses incurred in irregular foreclosures.
The audit practice alert contains advices for auditors on how exposures brought about by these mortgage- and foreclosure-related activities could impact their audits on a company’s financial statements and/or internal control over financial reporting.
PCAOB said that these impacts include accounting for “litigation or other loss contingencies and the related disclosures.”
PCAOB previously released another audit practice alert December 2008 that tackled identification of matters linked to economic environment matters to help auditors prepare for a possible audit risk regarding contingencies and guarantees, which the board said “continues to exist today.”
The audit practice alert also serves to advise auditors of the effects brought about by new circumstances to how they conduct their audits “under existing requirements of PCAOB standards and relevant laws,” PCAOB noted.
PCAOB made it clear that the audit practice alert does not serve to regulate and determine “the conduct of any particular firm, auditor, or any other person,” PCAOB said.