Audit committee resource: Auditing estimates and use of specialists


Authored by RSM US LLP

The Public Company Accounting Oversight Board (PCAOB) recently issued an audit committee resource, New PCAOB Requirements Regarding Auditing Estimates and Use of Specialists. This resource is designed to provide audit committees with background information and key takeaways about certain PCAOB requirements that will take effect for audits of fiscal years ending on or after December 15, 2020 as follows:

  • Auditing Accounting Estimates, including Fair Value Measurements, which replaces existing standards on auditing accounting estimates and fair value measurements with a single standard that, among other changes:
    • Focuses auditors on estimates with greater risk of material misstatement
    • Extends certain key requirements in the existing standard on auditing fair value measurements to other accounting estimates in significant accounts and disclosures, reflecting a uniform approach for substantive testing for estimates
    • Prompts auditors to devote greater attention to addressing potential management bias in determining accounting estimates, as part of applying professional skepticism
  • Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists, which, among other changes, aligns requirements for using the work of a specialist with the risk assessment standards and extends the auditor’s responsibility for using the work of a company’s specialist to evaluating the data, significant assumptions and methods the specialist used and testing data the company provided to the specialist.

With respect to these new requirements, the following are possible questions audit committees may consider asking their auditors:

  • How might the audit of estimates be affected by the new requirements?
  • To what extent does my company engage specialists in the preparation of financial statements?
  • In what areas does the auditor involve specialists, and how are the specialists used?
  • Is the auditor using a specialist this year for the first time or in a different way than in past audits?
  • Were there any significant changes in the auditor’s approach due to the new requirements?
  • Did the auditor have any particular challenges in applying the new requirements for our audit?
  • How does the auditor address potential management bias in accounting estimates?