By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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19. Audit firms found deficient during PCAOB inspections.
Audit firms that were found deficient during PCAOB
inspections usually accepted the way a client company accounted for sales in the
past, rather than checking for updates.
As U.S. and international accounting standard setters work to
fix, and then converge, rules related to revenue recognition, preparers and
auditors still struggle with proper real-world application of the regs. Indeed, during a meeting held in New York last week, a top official at the
Public Company Accounting Oversight Board noted that revenue recognition issues
regularly trip up audit firms. Further, a new survey of senior finance executives concluded that revenue recognition is
one of the most complex and risky accounting issues of the day.
At the meeting, sponsored by the New York State Society of
Certified Public Accountants, revenue recognition topped the list of
deficiencies uncovered by the PCAOB in their inspections of audit firms, said
Paul Bijou, the Deputy Director of Inspection at PCAOB.
Bijou noted that in virtually every review performed by the
PCAOB, inspectors “see elements that audit work could be better” with regard to
revenue recognition.
Bijou said that trouble spots included the way auditors
assessed multi-element contracts, contracts that lead to revenue, revenue
‘cut-offs,’ and timing related to acceptance of product.
Bijou said that the PCAOB team once had a top-ten list of
“significant or frequent auditing or quality-control deficiencies” that it
culled from its five years of inspections. But this year, the list grew to 11
items. The areas are : revenue, related-party transactions, equity transactions,
business combinations and impairment of assets, going concern considerations,
loans and accounts receivable (including allowance accounts), service
organisations, use of other auditors, use of work prepared by specialists,
independence issues, and concurring partner review.
The survey, conducted by RevenueRecognition.com and IDC,
polled 586 senior finance executives, and found that 42% of the respondents
believe that revenue-recognition reporting causes the most errors and
inaccuracies in financial statements. Contract management, which gained only 14%
of the vote, came in second, with planning and budgeting (11%), and account
reconciliations (10%) rounding out the top four answers.
Thirty-five percent of the respondents thought that revenue-recognition reporting was the most complex corporate accounting process
to manage, while 57% asserted that revenue-recognition errors had the highest
level of materiality in financial-statement reporting.
(Source : Internet, 20-9-2008)
