PCAOB Issues Staff Audit Practice Alert on Auditor Considerations of Significant Unusual Transactions
The Public Company Accounting Oversight Board today issued a Staff Audit Practice Alert to remind auditors of public companies about their responsibilities to assess and respond to the risk of material misstatement of the financial statements due to error or fraud posed by significant unusual transactions.
Staff Audit Practice Alert No. 5, Auditor Considerations Regarding Significant Unusual Transactions (Practice Alert No. 5) compiles relevant requirements from existing PCAOB auditing standards regarding significant unusual transactions to assist the auditor in reviews of interim financial information and audits of financial statements.
"The PCAOB’s message to auditors, in this challenging economic environment, has consistently emphasized attention to audit risk and adherence to existing audit requirements," said Martin F. Baumann, Chief Auditor and Director of Professional Standards.
Practice Alert No. 5 complements Staff Audit Practice Alert No. 3, Audit Considerations in the Current Economic Environment, by further addressing risks of material misstatement associated with significant unusual transactions, a risk that the staff believes continues to exist today.
Practice Alert No. 5 compiles existing requirements from PCAOB auditing standards regarding significant unusual transactions and groups them into the following categories:
- Identifying and assessing risks of material misstatement
- Responding to risks of material misstatement
- Consulting others
- Evaluating financial statement presentation and disclosure
- Communicating with audit committees
- Reviewing interim financial information
"Practice Alert No. 5 will assist auditors as they begin their work related to 2010 quarterly reviews and audits of financial statements," said Mr. Baumann.
These alerts are prepared to highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws.
Auditors should determine whether and how to respond to these circumstances based on the specific facts presented. The statements contained in Staff Audit Practice Alerts are not rules of the Board and do not reflect any Board determination or judgment about the conduct of any particular firm, auditor, or any other person.