In the financial statement audit, who is responsible for using accurate revenue recognition accounting estimates to prepare the financial statements of publicly traded companies (issuers)?

Question

BlackTom AI · Accepted Answer

When considering who is responsible for using accurate revenue recognition accounting estimates to prepare the financial statements of issuers, a variety of options must be evaluated in light of auditing responsibilities.
Option 1: The Public Company Accounting Oversight Board (PCAOB). This option is incorrect because the PCAOB is a standards-setting and oversight body, not the party that prepares the financial statements or makes accounting estimates. The auditor follows PCAOB standards, but does not prepare the statements themselves.
Option 2: The audit client’s independent external auditor. This choice is also inaccurate. While the external auditor performs the audit and evaluates whether estimates are reasonable, they do not prepare the financial statements or make the accounting estimates used in them. Their role is to express an opinion on the controls and the financial statements rather than to be the preparer of those estimates.
Option 3: The audit client’s management. This option is correct in the sense that management holds the primary responsibility for the preparation of the financial statements and for making accounting estimates, including revenue recognition estimates. They must establish and maintain appropriate internal controls and ensure that estimates are reasonable and in conformity with the applicable financial reporting framework.
Option 4: The audit client’s internal auditor. While internal auditors provide assurance on internal controls and risk management, they are not primarily responsible for preparing the financial statements or determining revenue recognition estimates. Their function supports management, but the responsibility for the estimates lies with management, not the internal audit function.
In summary, the core accountability for the accuracy and presentation of revenue recognition estimates in the financial statements rests with the audit client’s management, with the external auditor providing independent verification and oversight rather than preparation. The PCAOB sets the standards, but does not act as the preparer, and the internal auditor supports governance rather than direct preparation of the statements.

ACCT:4100:0001 Fall25 Final Exam- Requires Respondus LockDown Browser

In the financial statement audit, who is responsible for using accurate revenue recognition accounting estimates to prepare the financial statements of publicly traded companies (issuers)?

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Which of the following is not part of the FASB criteria for revenue recognition?

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