PCAOB Issues New Requirements on Auditing Accounting Estimates, Specialists
The Public Company Accounting Oversight Board (PCAOB) recently issued new requirements for auditing accounting estimates and fair value measurements and using the work of specialists.
Auditing Accounting Standards and Fair Value Measurements
The PCAOB said that the new, single standard on auditing accounting standards and fair value measurements sets forth a uniform, risk-based approach and emphasizes the need for auditors to apply professional skepticism, including addressing potential management bias, when auditing accounting estimates.
The new standard also provides more direction on addressing certain aspects unique to auditing fair values of financial instruments, including the use of pricing information from third parties, the PCAOB said.
Auditing Accounting Estimates (AS 2501) will be updated and retitled Auditing Accounting Estimates, Including Fair Value Measurements (AS 2501). Auditing Fair Value Measurements and Disclosures (AS 2502) and Auditing Derivative Instruments, Hedging Activities, and Investments in Securities (AS 2503) will be superseded.
Auditing the Work of Specialists
Regarding auditing the work of specialists, the PCAOB said that its amendments strengthen the requirements for evaluating the work of a company's specialist, whether employed or engaged by the company, and also apply a supervisory approach to both auditor-employed and auditor-engaged specialists.
Two existing standards, Audit Evidence (AS 1105) and Supervision of the Audit Engagement (AS 1201), were amended. In addition, the PCAOB retitled and replaced AS 1210, Using the Work of a Specialist, with a new AS 1210, Using the Work of an Auditor-Engaged Specialist.
The new requirements for auditing accounting estimates and using the work of specialists became effective for audits of fiscal years ending on or after Dec. 15, 2020.
The PCAOB is seeking comments on the new requirements, and they can be sent by email to comments@pcaobus.org. Comments are due June 10 and should refer to "Interim Analysis No. 2022-001, Estimates and Specialists Audit Requirements" in the email subject line.
The PCAOB expects to produce a report in the fourth quarter of 2022 to communicate findings and provide stakeholders with early insights into the initial impact of the requirements.