Fresh guidance from regulators is giving preparers of financial statements and their auditors another warning to pay close attention to economic stress and the risk it creates for misstatement in financial statements.

The Public Company Accounting Oversight Board has published a new audit alert updating a similar alert it published at the end of 2008 to tell auditors that they need to think about how economic conditions might lead to risks that commands attention in the audits. Concerns about fair value measurements, accounting estimates, going concern questions, and financial statement disclosures raised in 2008 continue to be critical in 2011, the PCAOB says. The alert addresses the impact of economic conditions on the audit, the audit of fair value measurements and estimates, the auditor's consideration of a company's ability to stay in business as a going concern, and auditing financial statement disclosures.

Martin Baumann, chief auditor and director of professional standards at the PCAOB, points out that auditors should be operating under a heightened alert to risk after the board adopted Auditing Standards No. 8-15 calling for new approaches to assessing and responding to risk. “These standards establish enhanced requirements for auditors,” he said during a national conference of the American Institute of Certified Public Accountants. “Auditors should understand how those requirements relate to audits performed in the current economic climate.”

Jamie Miller, General Electric's vice president, controller, and chief accounting officer, said during the conference that companies have faced some significant economic events in 2011 that have affected financial reporting – a tsunami and earthquake in Japan, a downgrade in U.S. debt, and a sovereign debt crisis in Europe, to name a few. They have forced the company to think through a number of issues, such as valuations, asset impairments, disclosures to investors about potential exposures, and concentrations of deferred tax assets or deferred tax liabilities that may need to be adjusted.

Of course, liquidity disclosures are top of mind as well, Miller said, and not just for companies with operations in troubled regions. “Even if you don't have foreign operations, your ability to access capital or your need for funding might be affected,” she said.

Speaking at the same conference, Mark Shannon, a deputy chief accountant for the Securities and Exchange Commission, said he would expect companies to pay close attention to liquidity and capital resource disclosures in management discussion and analysis. He's especially thinking of income taxes, goodwill impairments, and pensions as areas where current economic conditions might produce an accounting or disclosure impact that must be considered.

The PCAOB alert gives auditors a number of issues to consider, such as planning the audit and considering materiality in light of current market conditions, and assessing risk, especially fraud risk when management may be facing significant pressure to produce results under difficult conditions. It warns auditors to be prepared to make significant changes in the audit plan or the audit strategy if circumstances warrant, for example if a company has big changes in accounts at year-end because of volatility or market conditions.