Special Considerations in Auditing Financial Instruments - Audit Guide
This guide provides an in-depth understanding of financial instruments, as well as practical how-to guidance for minimizing the risk of material misstatement when using financial instruments.
Get serious about auditing financial instruments.
Entities of all sizes may be subject to risks of material misstatement when using financial instruments. This Audit Guide provides a foundational understanding of financial instruments, as well as practical assistance for auditors to develop an effective audit approach to address such risks.
Understand, implement and apply
Implementation guidance is provided for assessing an entity’s internal control and responding to associated risks, as well as guidance on reporting considerations. A series of case studies is provided to help you understand and apply the concepts specific to financial instruments, including the use of service organizations and accounting for hedging activities.
Developed by experts
This AICPA Audit Guide was developed by leading auditing and financial instrument experts in public practice to provide CPAs with foundational information on financial instruments and related audit considerations.
Changes from the 2016 edition
Conforming updates to FASB ASC content reflect the following ASUs:
- ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
- ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
- ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
- ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
- ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
- ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Relevant auditing guidance
The following standards are discussed in greater detail throughout this guide to address audit considerations unique to financial instruments:
- AU-C section 540B, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures
- AU-C section 315B, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement
- AU-C section 330B, Planning an Audit
- AU-C section 500B, Audit Evidence
- AU-C section 501B, Audit Evidence – Specific Considerations for Selected Items
- Entities of various sizes and industries
- Small, regional, and large auditing firms
- Preparers and auditors of financial instruments used for hedging, investment, and trading
- Auditing considerations for financial instruments:
- Internal control
- Risks of material misstatement
- Concluding on the work performed
- Case studies
- Changing the classiﬁcation of a security
- How an entity’s use of a service organization affects the auditor’s considerations
- Separately accounting for a derivative embedded in a bond
- Use of an interest rate swap to hedge existing debt
- Use of a foreign currency put option to hedge a forecasted sale denominated in a foreign currency
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