Given this potentially significant scope of work, it is important for auditors to work with management early in the process to understand management’s plans for disclosure and the associated timeline and evidence to support the disclosures. Additionally, depending on the significance of the transition disclosures and the risks of material misstatement related to the disclosures, auditing such disclosures could require auditors to evaluate the significant accounting conclusions underlying the disclosures and may also require auditors to perform audit procedures on the underlying transactions. As part of an audit, auditors obtain an understanding of the company's selection and application of accounting principles, including related disclosures and evaluate whether the company's selection and application of accounting principles are appropriate for its business and consistent with the applicable financial reporting framework and accounting principles used in the relevant industry. Auditors audit the company’s annual financial statements taken as a whole, which includes disclosures.Īssuming companies take the direction given by the SEC staff and provide robust and quantitative transition disclosures in their annual financial statements, it could be a significant undertaking for auditors. The SEC staff have also expressed the expectation that the transition disclosures become more robust and quantitative in nature as companies get closer to the effective date of the standard. The SEC staff have expressed the expectation that such disclosures include a description of the effect of the accounting policies that the company expects to apply, if determined a comparison with the current accounting policies the company’s progress in implementing the new standard and the significant implementation matters that it still needs to address. SAB 74 (Topic 11.M) requires that companies provide transition disclosures to investors of the impact that a recently issued accounting standard will have on its financial statements when that standard is adopted in a future period. 74 (SAB 74, Topic 11.M) transition disclosures and (2) internal controls over the adoption of the new revenue recognition standard. I will focus on two main areas where this is particularly important in the pre-adoption period: (1) Staff Accounting Bulletin No. Not only do I think that an approach of “taking your auditors along for the journey” can improve the quality of financial reporting and the quality of audits, I also think that it is a necessary element of our audit. Companies should involve their auditors to achieve effective implementation and quality financial reporting. Auditors can and should be onboard during this assessment and early implementation phase.
Companies should be getting closer to the robust and quantitative disclosures that the SEC expects.
It shouldn’t be said at this point-less than six months prior to the effective date for public calendar-year-end companies-that the effect is still unknown.
The new revenue recognition standard is a huge implementation effort for many companies, and it is important that it gets done right. A blog post by Amy Steele, Audit & Assurance partner, Deloitte & Touche LLP, National Office Audit & Assurance Services*
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