PCAOB Updates Requirements for Auditing Accounting Estimates, Bringing in Experts

The PCAOB has issued new requirements for auditing accounting estimates and fair value measurements and the use of specialist work. The board is seeking feedback on the new requirements.

As the use of sometimes complex accounting estimates and fair value measurements expands in financial reporting, those estimates become high risk for auditors, the PCAOB said.

Similarly, the use of specialists is increasing both in frequency and importance. “If the work of a specialist is not properly supervised or evaluated by the auditor, there may be an increased risk that the work of the auditor will not be sufficient to detect a material misstatement in the accounting estimates”, said the PCAOB.

Audit of accounting standards and fair value measurements

The new single standard establishes a uniform risk-based approach, the PCAOB said. He emphasizes that auditors should exercise professional skepticism, including consideration of potential management bias, when auditing accounting estimates.

According to the PCAOB, the new standard also provides more guidance on certain aspects unique to auditing the fair values ​​of financial instruments, including the use of pricing information from third parties such as pricing departments and brokers. .

Audit of accounting estimates (AS 2501) will be updated and renamed Audit of accounting estimates, including fair value measurements (AS 2501). Two other standards, Audit of Fair Value Measurements and Disclosures (AS 2502) and Audit of Derivative Instruments, Hedging Activities and Securities Investments (RO 2503), will be replaced.

Auditing the work of specialists

The PCAOB said its amendments strengthen the requirements for evaluating the work of a company’s specialist, whether employed or hired by the company. The changes “are designed to increase audit focus in areas where a specialist is used and to align applicable requirements with PCAOB risk assessment standards,” the PCAOB said.

The amendments also apply a monitoring approach to both specialists employed by verifiers and specialists engaged by verifiers.

The PCAOB amended two existing auditing standards, AS 1105, Audit evidenceand AS 1201, Supervision of the audit mission. It renamed and replaced AS 1210, Use the work of a specialistwith a new AS 1210, Use of the work of a specialist engaged by an auditor.

The PCAOB plans to produce a report in the fourth quarter of 2022 to communicate the results and provide stakeholders with early insight into the initial impact of the requirements.

Comments are due by June 10. Email comments should refer to “Draft Analysis #2022-001, Expert Estimates and Verification Requirements” in the subject line. They can be sent to [email protected]

The new requirements relating to the auditing of accounting estimates and the use of specialist work came into effect for audits of fiscal years ending on or after December 15, 2020.

— To comment on this article or suggest an idea for another article, contact Neil Amato at [email protected].

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