Find a current article related to any topic in the chapter and present your findings to the class. Upload your completed assignment here before class. Below is an example of how you should present your article. Provide the link to your article at the top of your paper each week. All assignments must be posted using the safe assign link. Thanks to the student who presented this thoughtful analysis. Please note how the student related the article to the course.

Find a current article related to any topic in the chapter and present your findings to the class. Upload your completed assignment here before class. Below is an example of how you should present your article. Provide the link to your article at the top of your paper each week. All assignments must be posted using the safe assign link. Thanks to the student who presented this thoughtful analysis. Please note how the student related the article to the course.
Current Article Review – Chapter 7
“Challenges to Consider in Auditing Revenue Recognition” by Thorps, Dohrer, Kushmerick, Lee-Andrews.
https://www.journalofaccountancy.com/issues/2020/jul/auditing-revenue-recognition-challenges-to-consider.html
FASB ASC Topic 606 (Revenue from Contracts with Customers) is the new revenue recognition standard. This is an accounting standard that provides a five-step framework for more consistent revenue recognition by businesses. The new standard went into effect for public business entities in 2018, and for non-public business entities (including not-for-profits) in 2019.[1]
In the article “Challenges to Consider in Auditing Revenue Recognition” by Thorps, Dohrer, Kushmerick, Lee-Andrews, the authors’ main argument is that auditors must fully understand the five-step framework of revenue recognition in order to perform audit procedures. The framework includes the following five steps, which require significant judgement: “(1) identify contracts with customers; (2) identify separate performance obligations; (3) determine the transaction price; (4) allocate transaction price to the separate performance obligation; (5) recognize revenue.[2]” The authors of the article point to several auditing missteps that were identified based on the research of PCAOB Inspection Reports and Peer Review Program data related to accounting estimates. The research showed areas where auditors had difficulty adapting to the new standard. One of the identified audit missteps is related to risk assessment. One of the most important audit procedures is the audit risk assessment, as it provides insight into the company, its environment, and internal controls; it identifies and assesses the risk of material misstatement due to error or fraud. According to the Peer Review Program data, “auditors did not always consider the client’s processes and controls related to the revenue transaction cycle.[3]” The second auditing misstep is related to substantive testing. According to the PCAOB inspection reports, auditors did not perform sufficient test procedures regarding revenue recognition where significant estimates were involved. The third auditing misstep has to do with documentation. Auditors must prepare clear and understandable audit documentation. The last audit misstep identified relates to auditor independence. Auditors should not provide prohibited non-attestation services.
Chapter 7 of the book focuses on the revenue and collection cycle. One of the topics in this chapter is revenue recognition. Revenue recognition is the process of recording revenues on a company’s books. Sometimes companies overstate their revenues to meet financial goals. The article “Challenges to Consider in Auditing Revenue Recognition” by Thorps et al. is related to this chapter because it shows the importance of proper revenue recognition in financial statements. Auditors need to be aware of the requirements of the new revenue recognition standard and fully understand these requirements so that they do not miss errors or fraud.
[1] “FASB, Financial Accounting Standards Board.” Revenue Recognition, www.fasb.org/jsp/FASB/FASBContent_C/CompletedProjectPage&cid=1175805486538. Accessed March 29, 2021
[2] Thorps, Deana et al. “Challenges to Consider in Auditing Revenue Recognition.” Journal of Accountancy, Journal of Accountancy, 1 July 2020, www.journalofaccountancy.com/issues/2020/jul/auditing-revenue-recognition-challenges-to-consider.html. Accessed March 29, 2021.
[3] Thorps, Deana et al. “Challenges to Consider in Auditing Revenue Recognition.” Journal of Accountancy, Journal of Accountancy, 1 July 2020, www.journalofaccountancy.com/issues/2020/jul/auditing-revenue-recognition-challenges-to-consider.html. Accessed March 30, 2021.