June 22, 2020
Published: The CAQ
Public companies are increasingly using complex accounting estimates in their financial statements and relying on specialists with new expertise to make those estimates. High-quality auditing coupled with the use of specialists promotes trust in capital markets by presenting a clearer picture of companies’ current and future financial outlooks.
The Public Company Accounting Oversight Board (PCAOB) adopted new requirements for auditing accounting estimates and the auditor’s use of the work of specialists that are effective for audits of fiscal years ending on or after December 15, 2020. These new requirements will directly impact public company auditors, but could indirectly impact prepares of financial statements and as such it is important that financial reporting stakeholders are prepared for these requirements.
The Center for Audit Quality (CAQ) and Financial Executives International (FEI) teamed up to summarize these new and amended requirements for auditing accounting estimates and the auditor’s use of the work of specialists. Financial reporting stakeholders – including auditors and public company management – should use this summary, in conjunction with PCAOB standards, to help them implement the new and amended requirements in preparation for future audits.
This resource identifies key changes within the new and amended requirements for auditing accounting estimates which emphasize the role of professional skepticism, including addressing potential management bias, when auditing accounting estimates. Additionally, it identifies key changes in the new and amended requirements for the auditor’s use of the work of specialists, including auditing fair values of financial instruments that are based on information from third-party pricing sources and the requirements for evaluating the work of a specialist, whether employed or engaged by the company or the auditor.
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