PCAOB Standards Near SEC ApprovalBy
The U.S. Securities & Exchange Commission (SEC) is likely to give the Public Company Accounting Oversight Board (PCAOB) the green light to finalize a revised auditing standard as well as amend others that would ratchet up oversight of specialists employed by accounting firms.
The PCAOB says that besides improving the accuracy of estimates used in financial statements, these revisions may decrease reporting costs for companies. The proposed standard, Auditing Accounting Estimates, Including Fair Value Measurements (AS 2501), would replace three existing standards. It emphasizes that auditors need to apply professional skepticism, including addressing potential management bias, when auditing accounting estimates.
The PCAOB is amending two existing auditing standards, Audit Evidence (AS 1105) and Supervision of the Audit Engagement (AS 1201), and retitling and replacing the current AS 1210, Using the Work of a Specialist, with a new AS 1210, Using the Work of an Auditor-Engaged Specialist. The amendments are intended to strengthen the requirements that apply when auditors use the work of specialists in an audit.
These are related to the estimates standard because the use of specialists is increasing in “frequency and significance,” according to the PCAOB, due to the increasing complexity in business transactions and changes to financial reporting frameworks. The specialists category includes actuaries, appraisers and other valuation specialists, legal specialists, environmental engineers, and petroleum engineers; they’re often deployed to track and vet audit evidence.
Tom Quaadman, executive vice president at the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, thinks the PCAOB should approve a phased implementation schedule—instead of the proposed January 1, 2020, deadline—because companies face a logjam of new Financial Accounting Standards Board (FASB) standards that go into effect in 2020. But Quaadman says that the Center supports the new standards.