Recently, the PCAOB issued this Staff audit alert to assist independent auditors in applying PCAOB standards when they audit their client’s implementation of FASB’s new revenue recognition standard. Topics covered include:
– Transition disclosures & adjustments
– Internal control over financial reporting
– Fraud risks
– Revenue recognition
Here’s an excerpt from the alert’s discussion of key factors for auditors to consider when assessing the internal control implications of the new standard:
PCAOB standards require the auditor to obtain a sufficient understanding of each component of internal control over financial reporting to (a) identify the types of potential misstatements, (b) assess the factors that affect the risks of material misstatement, and (c) design further audit procedures.
Changes to company processes for the implementation of the new revenue standard can affect one or more components of internal control. For example, the auditor is required to obtain an understanding of the company’s control environment, including the policies and actions of management, the board of directors, and the audit committee concerning the company’s control environment.
Check out this recent blog from Steve Quinlivan for more on the PCAOB’s alert. And we’re posting numerous memos on transition issue – and the new revenue recognition standard more specifically – in our “Revenue Recognition” Practice Area.
Revenue Recognition: SEC Comments for Early Adopters
This “SEC Institute” blog reviews Corp Fin’s comments on filings by two early adopters of FASB’s new revenue recognition standard. The Staff’s comments – which are set forth in full in the blog – focus on MD&A and financial statements. And their emphasis is on the adequacy of disclosure and seeking to understand how the company made judgments in applying the new principles-based standard.
While the two companies that received comments were able to resolve them quickly, the blog also includes a reminder that not all comments on new accounting standards have happy endings:
New accounting standards always draw attention from the SEC. Way back in the 1990s, SFAS 133 (now of course ASC 815) was issued to create dramatically different new guidance for derivative and hedge accounting. Louis Dreyfus Natural Gas early adopted the new standard. After certain issues were raised in an SEC review, Louis Dreyfus Natural Gas was forced to restate its initial application of the new derivative accounting model.
“Black Monday”: 30 Years Ago Today!
It’s hard to believe, but “Black Monday” – the great stock market crash of 1987 – happened 30 years ago today, October 19, 1987. This Bloomberg article recounts memories of that day from a cross-section of Wall Street players. So much that was once unthinkable has happened to the markets & the world since that day that I’m sure some of our younger readers are asking themselves, “what’s the big deal?”
Well, the greatest single one day drop in Wall Street’s history didn’t occur in 1929 or 2008 – it happened on Black Monday in 1987. The market lost nearly 23% of its value in a single day. This quote from a trader will give you some sense of how many people felt that day:
I was so scared that I got $10,000 out of the bank, took it home, and stored it in the rafters.
Personally, I remember that day vividly. I was in a drafting session for a public offering, and the bankers kept nervously calling their office to find out how the market was doing. By the time the market closed, it was very apparent to everyone that our deal was stone dead.
– John Jenkins