PCAOB offers guidance on new auditing estimates and specialist requirements

The Public Company Accounting Oversight Board issued four documents Thursday providing guidance from its staff on the new requirements for auditing accounting estimates and the auditor’s use of a specialist.

The new requirements will be taking effect for audits of financial statements for fiscal years ending on or after Dec. 15, 2020, and the PCAOB wants to offer some extra help ahead of time.

The four staff guidance documents are:

• Auditing Accounting Estimates

• Auditing the Fair Value of Financial Instruments

• Supervising or Using the Work of an Auditor's Specialist

• Using the Work of a Company’s Specialist

The first two documents explain different aspects of the PCAOB’s new auditing standard, AS 2501, Auditing Accounting Estimates, Including Fair Value Measurements, which make some changes in the auditor’s responsibilities for assessing the risks of a material misstatement. The risk assessment standards have been amended to enhance the risk assessment process in relation to accounting estimates in three ways, including fair value measurements.

Courtesy of PCAOB

The other two documents highlight aspects of new requirements that apply when auditors use the work of specialists in an audit and when an auditor uses the work of a company specialist as audit evidence. A specialist is an individual person or a firm who has special skill or knowledge in a particular field other than accounting or auditing, such as someone who specializes in valuations of financial instruments. The new requirements, can be found in Appendix C to AS 1201, Supervision of the Audit Engagement (when using the work of an auditor-employed specialist); and AS 1210, Using the Work of an Auditor-Engaged Specialist.

“Accounting estimates and using the work of specialists are both prevalent areas of the audit,” said PCAOB Chairman William D. Duhnke in a statement. “As auditors begin to plan and perform work on audits subject to new requirements in these areas, we are committed to proactively providing resources to them and supporting effective implementation.”

The PCAOB has created two implementation web pages on its website for the new estimates standard and amendments for the auditor’s use of the work of specialists to provide additional information to auditors about the new standards. The PCAOB and its staff plan to continue to monitor audit firms’ implementation efforts and determine if further guidance is needed.