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The PCAOB Issues a Practice Alert to Auditors on the New Revenue Standard. Issuers would be well served by reading it.

On October 5, 2017, the PCAOB issued Staff Audit Practice Alert No. 15—Matters Related to Auditing Revenue from Contracts with Customers.

The Practice Alert was issued to discuss significant matters on the implementation of the new accounting standard for revenue and the auditor’s consideration of those matters. This guidance may provide issuers themselves with some useful tools in developing their implementation plan and the necessary discipline that should be applied to that implementation.

A couple of these items that may be useful for issuers to consider are as follows:

  • Impact on Internal Control over Financial Reporting
  • Opportunities inherent in the implementation for committing and concealing fraud

Impact on Internal Control over Financial Reporting:

  • What are the updates and changes to risk assessments to address the significant changes made as a result of implementing the new revenue standard?
  • What changes need to be made to controls inherent in the information systems, and how are they designed and implemented?
  • What changes will be made to a company’s process, and how are those associated internal controls documented, implemented, and tested?

Opportunities inherent in the implementation for committing and concealing fraud

  • There is a presumption that revenue is a fraud risk. The new revenue standard creates uncertainty around the recognition of revenue, which provides opportunity for manipulation.
  • Management should consider this fraud opportunity when designing its controls and systems around recognizing revenue.

A copy of the PCAOB guidance can be accessed here: https://pcaobus.org/Standards/QandA/SAPA-15-revenue-accounting-standard.pdf

Implementation of the new revenue standard is complex and requires a significant amount of planning and upfront design work. The standard impacts almost all companies and significantly changes the landscape around revenue recognition.

If you would like further information regarding the services we provide on implementing the new revenue standard, please contact Elberta Nizzoli at: enizzoli@singerlewak.com or at 310-477-3924