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ACCOUNTING AND SEC HEADLINES:

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Auditor’s Use of Data – PCAOB Issues Staff Report on Testing Information Produced by Companies and External Sources

The PCAOB released a new Spotlight staff report, “Inspection Observations Related to Auditor Use of Data and Reports.” The Spotlight is aimed at improving auditor understanding of how to properly test information produced by the company and information from external sources.

Examples of information produced by the company (IPC) include invoices or shipping documents issued by the company, as well as other data and reports from a company’s information technology systems. Information received from external sources includes, for example, purchase orders submitted by customers, or bank records. In both the 2021 and 2022 inspection cycles, approximately 17% of the audits inspected by the PCAOB had deficiencies where the auditor did not perform sufficient procedures to test (or sufficiently test controls over) the accuracy and completeness of IPC or information from external sources.

To improve audit quality, the Spotlight highlights common audit deficiencies, good practices, and other reminders that may improve auditor understanding of how to properly test IPC and information from external sources.

Income Taxes – 2025 Edition of Accounting for Income Taxes Interpretation Published

We have published the 2025 edition of our Interpretation, Accounting for Income Taxes - Interpretations of U.S. GAAP. This interpretation provides guidance on the application of Financial Accounting Standards Board (FASB) Accounting Standards Codification™ Topic 740, Income Taxes.

The FASB issued one update related to Topic 740 in the past year, and another that impacted Topic 740. The latter was ASU 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement. This ASU impacted Topic 740 with tax issues related to new accounting guidance related to joint ventures. The former was ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.

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AUDITING AND INTERNAL CONTROL HEADLINES:

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Commercial Entities – New Edition of Knowledge-Based Audit of Commercial Entities Published

We have published a new edition of Knowledge-Based Audit of Commercial Entities. This publication is designed to help the auditor efficiently and effectively perform financial statement audits and, when applicable, audits of internal control over financial reporting, of nonpublic commercial entities in accordance with auditing standards generally accepted in the United States of America (U.S. GAAS).

This new edition incorporates current authoritative guidance, including:

• SAS No. 146, Quality Management for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards (effective for periods beginning on or after December 15, 2025);
• SQMS No. 1, A Firm's System of Quality Management;
• SQMS No. 2, Engagement Quality Reviews;
• SQMS No. 3, Amendments to QM Sections 10, A Firm’s System of Quality Management, and 20, Engagement Quality Reviews (effective December 15, 2025); and
• SAS No. 149, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors) (effective for periods ending on or after December 15, 2026).

Employee Benefit Plans – 2024 Edition of Knowledge-Based Audits of Employee Benefit Plans Guide Published

We have published the 2024 edition of Knowledge-Based Audits of Employee Benefit Plans Guide. This new edition provides guidance on the implementation of the standards and rules promulgated by the ASB, as well as selected best practices based on the guidance promulgated by the Public Company Accounting Oversight Board (PCAOB) and other regulators, as well as accounting requirements of the Financial Accounting Standards Board (FASB). This guide has been updated to incorporate the provisions of the following ASB Statements on Auditing Standards (SASs) and other guidance:

• SAS No. 147, Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance With Laws and Regulations;
• SAS No. 148, Amendment to AU-C Section 935; and
• AICPA Ethics Interpretation, Information System Services (ET Section 1.295.145).

Auditor’s Use of Data – PCAOB Issues Staff Report on Testing Information Produced by Companies and External

As discussed above, the PCAOB released a new Spotlight staff report, “Inspection Observations Related to Auditor Use of Data and Reports.” The Spotlight is aimed at improving auditor understanding of how to properly test information produced by the company and information from external sources.

Examples of information produced by the company (IPC) include invoices or shipping documents issued by the company, as well as other data and reports from a company’s information technology systems. Information received from external sources includes, for example, purchase orders submitted by customers, or bank records. In both the 2021 and 2022 inspection cycles, approximately 17% of the audits inspected by the PCAOB had deficiencies where the auditor did not perform sufficient procedures to test (or sufficiently test controls over) the accuracy and completeness of IPC or information from external sources.

To improve audit quality, the Spotlight highlights common audit deficiencies, good practices, and other reminders that may improve auditor understanding of how to properly test IPC and information from external sources.

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