PCAOB to consider rules on auditing estimates, use of specialists

By Ken Tysiac

The PCAOB will consider whether to adopt new public company auditing rules for auditing accounting estimates and use of the work of specialists during a public meeting scheduled for Dec. 20.

The subjective nature of estimates and fair value measurements make these issues challenging for auditors. The PCAOB has proposed replacing its existing standards on auditing estimates and fair value measurements with a single standard, AS 2501, Auditing Accounting Estimates, Including Fair Value Measurements.

In addition, the PCAOB has proposed amending the risk assessment standards to provide more specific guidance on certain aspects of auditing accounting estimates. The proposal emphasizes the need for auditors, when auditing accounting estimates, to:

  • Apply professional skepticism.
  • Devote more attention to potential management bias.

The PCAOB also proposed including a special topics appendix in the standard that would address certain matters relevant to auditing the fair value of financial instruments, including the use of information from pricing services.

Meanwhile, auditors have been using specialists more often because the use of fair value measurements and other accounting estimates has increased over the past several years. Auditors who do not properly oversee or evaluate the work of specialists may increase their risk of producing work that does not detect a material misstatement in accounting estimates.

The PCAOB has proposed adding a new appendix to AS 1105, Audit Evidence. The appendix would address the topic of using the work of a company's specialist as audit evidence, based on the risk-based approach of the risk assessment standards.

The proposal also would add a new appendix on supervising the work of auditor-employed specialists to AS 1201, Supervision of the Audit Engagement, and would replace AS 1210, Using the Work of a Specialist, with proposed AS 1210, Using the Work of the Auditor-Engaged Specialist, to establish requirements for using the work of specialists engaged by auditors.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA's editorial director.

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