The latest edition in the Public Company Accounting Oversight Board’s “Audit Focus” series highlights the auditor’s responsibilities related to journal entries.
PCAOB auditing standard AS 2401, Consideration of Fraud in a Financial Statement, recognizes that when financial statements are materially misstated due to fraud, manipulation of the financial reporting process using inappropriate or unauthorized journal entries is often involved.
PCAOB staff continues to identify a large number of deficiencies related to the auditor’s examination of journal entries, the audit regulator said. As a result, “Audit Focus: Journal Entries” provides the following additional resources:
- Reminders regarding understanding controls over journal entries, identifying and selecting journal entries to test, testing the completeness of the population of journal entries, and testing of journal entries.
- Common deficiencies that staff has observed, such as auditors not testing any of the journal entries that met their fraud criteria, auditors unduly limiting their procedures to certain journal entries meeting their fraud criteria, and auditors not testing the completeness of the population of journal entries.
- Good practices that the staff has observed, such as audit firms providing examples to engagement teams of characteristics of potentially fraudulent journal entries, training for all partners and firm personnel on the applicable PCAOB standard, and journal entry practice aids.
“Audit Focus” is a series of PCAOB publications that aims to provide easy-to-digest information to auditors, especially those who audit smaller public companies. Each edition reiterates the applicable auditing standards and/or staff guidance, as well as offers reminders and good practices tailored to PCAOB-registered auditors of smaller public companies. Previous editions of “Audit Focus” focused on critical audit matters and audit committee communications.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
