Auditing firms have been relying increasingly on outside specialists for audit engagements since the Public Company Accounting Oversight Board unveiled a new standard governing their use.
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The difference was mainly driven by an increase of 8.8 percentage points among engagements performed by firms that aren't affiliated with a major global network like the Big Four, but there was not a statistically significant difference for audit engagements performed by U.S. firms that are members of those global networks.
The new standard for the use of outside specialists was approved in tandem with a related standard for the use of accounting estimates, including fair value measurements. They aim to prove a uniform, risk-based approach to auditing accounting estimates and strengthening requirements under the existing substantive testing approaches, emphasizing the application of professional skepticism, including addressing potential management bias in accounting estimates. Approximately one-third of the audit firms in the staff's survey reported that the new estimates requirements and specialist requirements improved their auditing practices, while others reported that effects were limited and didn't significantly change how engagement teams conducted their audits.
The staff analysis found that audit firms had significant variations in the amount of time they spent on supporting implementation of both the new estimates and specialist requirements and in training their partners and staff on how to use the new requirements. At the audit engagement level, nearly all the firms and audit engagement partners reported that the new estimate and specialist requirements didn't lead to significant increases in either audit hours or audit fees. However, they did find evidence of changes in specialist usage following implementation of the specialists requirements, with engagement teams more likely to use specialists now since the standard took effect, especially at smaller audit firms.
"However, among the engagements that used auditor's specialists, the average amount of time specialists spent per engagement did not change," said the report. "Results from available data at larger audit firms suggest that auditor's specialists spent more of their efforts in the planning stage of the audit process."
The PCAOB staff also released an
Among auditors who reported that the estimate requirements had an impact on their audit engagements, the most commonly reported effects were (1) more focus during the planning phase of the audit on better understanding the components of accounting estimates and identifying potential risks of material misstatement within those components (such as methods, models, data and assumptions) and (2) more thorough documentation of the engagement team's risk analysis and audit procedures performed to address the identified risks.
Among the auditors who said the specialist requirements had an impact on their audit engagements, the most commonly reported effects were (1) improved coordination and communication between engagement teams and auditor's specialists and (2) enhanced documentation of the work performed by specialists.
Among the firms that said that effects of the new requirements were more limited, some reported using the implementation year as an opportunity to (1) remind their engagement teams about their responsibilities when auditing accounting estimates and (2) refresh the dialogue around practical strategies for more effective and efficient collaboration between engagement teams and auditor's specialists.
"For those firms, the new requirements may have helped to reinforce existing expectations and improved audit quality by reminding engagement teams of their responsibilities," said the report. "Some firms reported seeing an increase in the use of auditor's specialists by some of their engagement teams, but only one firm attributed the increase to the new Specialists Requirement."
