Audit committees have a significant role to play as organisations implement a new accounting standard for revenue recognition that will have a big effect on many industries.
“Particularly for companies where implementation is lagging, preparers, their audit committees, and auditors should discuss the reasons why and provide informative disclosures to investors,” SEC Chief Accountant Wes Bricker said last week at the AICPA Conference on Current SEC and PCAOB Developments.
The audit committee’s responsibilities for overseeing revenue recognition can be fulfilled with the help of a new tool developed by the Center for Audit Quality, which is affiliated with the American Institute of CPAs. Audit committee members can use the tool to learn about the new standard, how to evaluate the company’s impact assessment, how to evaluate the implementation project plan, and other relevant considerations.
Understanding the new standard: Audit committee members should ask management to explain the standard and how it affects (or does not affect the company).
Evaluating the company’s impact assessment: Members of the audit committee may ask what factors went into management’s impact assessment and what effect the standard will have on the company’s revenue streams and related activities.
Evaluating the implementation project plan: How milestones are established and monitored and who is responsible for new accounting policy decisions are some of the many questions audit committee members may want to ask. The audit committee may want to request a quarterly report from management on the progress of implementation.
Other considerations: Audit committee members may want to ask what transition method the company will use and how the company will develop new processes and controls to obtain any new disclosures that may be required.
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine editorial director.