Accounting & Auditing Conference - Virtual-2 - Merryman - Common-Inspection-Issues-Peer-Review-Matters--How-to-Address-Them

2 - Merryman - Common-Inspection-Issues-Peer-Review-Matters--How-to-Address-Them

Pdf Summary

The presentation reviews recurring matters for further consideration (MFCs) identified in peer reviews, emphasizing documentation, standards adoption, and appropriate reporting.<br /><br />Risk assessment was a major source of findings: AU-C 315 and 330 issues accounted for 34% of AU-C-related MFCs analyzed. Auditors must assess control risk at the maximum level when they do not plan to test controls’ operating effectiveness. If they assess risk below maximum, they need testing evidence. Workpapers should clearly link identified risks—including significant risks and relevant controls—to responsive audit procedures. Confusing a significant audit area with a significant risk, or failing to document controls addressing a significant risk, can create deficiencies.<br /><br />Other recurring findings include inadequate audit evidence, missing predecessor-auditor communications, and insufficient subsequent-events documentation. Compilation, review, and agreed-upon procedures engagements also commonly have outdated or incomplete reports, missing required disclosures, insufficient analytical procedures, or incomplete engagement documentation.<br /><br />Failure to adopt ASC 842 for leases can have serious peer-review consequences. Many such MFCs were included in peer-review reports, resulting in non-passing ratings and possible remediation, restrictions on reviewer eligibility, or referral to state boards after repeated non-passing reviews. Practitioners should recognize when financial statements depart from GAAP, consider the effect on their reports, and discuss whether another reporting framework better fits users’ needs.<br /><br />The presentation also highlights CECL (ASC 326) findings. The standard applies broadly to financial assets measured at amortized cost, not only to financial institutions; examples include trade and retainage receivables and certain lease investments. Common problems include failing to adopt the standard, misunderstanding its scope, and omitting required disclosures. Even when estimated effects or disclosures appear immaterial, firms should assess and document the conclusion, identify applicable requirements, and address disclosures that are more than clearly trivial.

Keywords

peer reviews

matter for further consideration

audit documentation

risk assessment

AU-C 315

AU-C 330

ASC 842 leases

CECL ASC 326

audit evidence

financial reporting standards