“Same as last year?” Definitely not.
This year won’t be “business as usual” for auditors. Auditors are navigating a new revenue recognition standard and still dealing with pandemic-related disruptions. CPAs have worked hard to perform audits under uncertain circumstances since the pandemic began, and that work will continue this year.
The AICPA® will help you prepare for these changes so you can keep performing high-quality work. We talked to experts — more than 230 peer reviewers — about the challenges auditors are facing around revenue recognition and the current business environment. We’ve also identified resources that will help you audit successfully.
Here’s what the peer reviewers said.
Top five ASC 606 challenges: Accounting
The Financial Accounting Standards Board’s (FASB) new revenue recognition standard, FASB ASC Topic 606, Revenue From Contracts With Customers, is one of the most significant accounting standard changes in history. The surveyed peer reviewers identified these top ASC 606-related accounting challenges:
- Identifying performance obligations (31% of respondents)
- Recognizing revenue (28%)
- Identifying relevant contracts (26%)
- Identifying variable consideration, including material rights (22%)
- Determining appropriate transaction price allocation (16%)
Auditors should consider how these issues may affect their clients. The AICPA’s revenue recognition toolkit has resources that can help.
Top five ASC 606 challenges: Auditing
The surveyed peer reviewers also weighed in on the top ASC 606-related audit challenges:
- Determining whether management appropriately applied ASC 606 (48% of respondents)
- Documenting the understanding of key contract terms where necessary (30%)
- Evaluating management’s process for developing the estimate(s) (28%)
- Determining whether assumptions used by management were reasonable (23%)
- Assessing associated risks (21%)
The revenue recognition toolkit I mentioned earlier also has audit-specific resources to help. One such resource is a practice aid that explains the five ASC 606 steps. It also outlines associated potential risks of material misstatement, processes where the client should have established controls and examples of audit procedures to address risks.
Top five challenges related to the pandemic: Accounting and auditing
The abrupt shift to remote working, economic uncertainty and new federal relief programs created numerous accounting and auditing complications for organizations this year:
- Internal control (41% of respondents)
- Compliance with CARES Act requirements (e.g., Paycheck Protection Program) (38%)
- Going concern (33%)
- Asset impairments (24%)
- Revenue recognition (22%)
Leverage some of the AICPA’s resources to get ahead of these challenges. The internal control toolkit’s resources include an internal control over financial reporting tool template and an article on common missteps to avoid.
The AICPA’s COVID-19 Audit & Assurance toolkit is another valuable source for information on auditing remotely as well as auditing clients affected by the pandemic. The resources cover topics such as fraud risk, issuing an appropriate auditor’s report and Paycheck Protection Program implications.
Thank you to the peer reviewers who shared their thoughts with us. Through the Enhancing Audit Quality initiative, the AICPA continues to uncover more insights about how to audit successfully in today’s business environment. Keep following our blog and the COVID-19 Audit & Assurance toolkit for more information.
Deana N. Thorps, CPA, MBA, Manager — Audit Quality Initiatives, Association of International Certified Professional Accountants