As planning for 2015 audits has begun, it is important to take into consideration key areas of risk, as determined by the Center for Audit Quality (CAQ) and the PCAOB, which include the following:
Professional skepticism: A questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence are imperative to performing a quality audit with due professional care.
Internal control over financial reporting (ICFR): To minimize risks in this area, select appropriate controls to test, evaluate if those controls are adequate and test the operating effectiveness of them.
Risk assessment and audit planning: Risk assessment should be completed during the planning phases of the audit and continue through the audit. When there is timely involvement by the engagement partner and engagement quality review partner, it helps ensure effectiveness of the risk assessment.
Supervision of other auditors: It is the responsibility of the engagement partner to supervise the work of all engagement team members to ensure that the work is performed and supports the conclusions and opinion reached.
Testing issuer-prepared data and reports: The auditor should evaluate whether information prepared by the client and being used as audit evidence is both sufficient and appropriate for the purposes of the audit.
Revenue recognition: The auditor should determine the adequacy of management's required disclosure of the impact of the new accounting standard for revenue recognition even though it has not yet taken effect.
Auditing accounting estimates, including fair value measurements: When auditing accounting estimates, the auditor is responsible for three things; 1) evaluating the development of the estimates, 2) assessing the reasonableness, and 3) assessing if the estimates were presented in conformity with applicable accounting principles and are properly disclosed.