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PCAOB Issues Guidance for Audit Committees on New Estimates and Use of Specialists Standards

The Public Company Accounting Oversight Board has released an Audit Committee Resource entitled New PCAOB Requirements Regarding Auditing Estimates and Use of Specialists. The six-page document provides audit committees with “key takeaways” and questions about the Board’s requirements for auditing accounting estimates, including fair value measurements, and for auditor use of the work of specialists. The PCAOB’s new standards on these topics took effect for audits of fiscal years ending on or after December 15, 2020.


In 2018, the board adopted a new standard for auditing accounting estimates, including fair value measurements, and a new standard on how auditors should consider the work of specialists who have been hired either by the financial statement preparer or by the auditor. According to the Board, the new estimates standard is more responsive to risk and reinforces the auditor’s professional skepticism, while the specialists standard strengthens the requirements for evaluating the work of specialists. These topics are related since specialists are often retained to assist in establishing or auditing valuation estimates.


The PCAOB staff publication highlights four points that audit committees should keep in mind regarding these new standards.

  • The effects of the new requirements will not be uniform across all audits. For some audit firms, particularly large firms, the new standards may simply codify existing practices and will not change the auditor’s methodology. Audits performed by smaller firms may be more substantially affected.

  • The extent of effects of the new requirements will depend on the nature and extent of accounting estimates included in the company’s financial statements, and also on whether the company uses a specialist. While the new standards allow the auditor to use the work of the company’s specialist (as did the prior standards), the new standards may prompt an auditor to begin using its own specialist in areas with high risk of material misstatement (e.g., significant unusual transactions or estimates that involve a high degree of subjectivity).

  • The new standard and amendments do not change the requirements for the auditor’s communications with audit committees, including those communications related to critical accounting estimates. Under the PCAOB’s standard on audit committee communications, auditors are required to provide the audit committee with an overview of their audit strategy, including the use of specialists, the significant risks identified in their risk assessment, and other matters that may bear on the auditing of estimates and fair value determinations.

  • Auditors are applying these new requirements in extraordinary times and in situations that continue to evolve due to the COVID-19 pandemic. The current environment may have a significant effect on the complexity of accounting estimates and measurement uncertainty.

The PCAOB staff suggests seven questions that audit committee may want to consider in connection with the implementation of the new standards.


1. How might the audit of my company’s estimates be affected by the PCAOB’s new requirements?

2. To what extent does my company engage specialists to be involved in the preparation of financial statements?

3. Does my auditor involve specialists? If so, in what areas, and how are the specialists used?

4. Is my auditor using a specialist this year for the first time or in a different way than in past audits?

5. Were there any significant changes in my auditor’s approach compared to prior years due to the new requirements?

6. Did my auditor have any particular challenges in applying the new requirements at our company?

7. How does my auditor address potential management bias in accounting estimates?


Comment: Financial reporting has evolved over the last several decades to incorporate a growing number of accounting estimates, including in areas such as fair value measurement, impairment of intangible assets, inventory obsolescence, collectability of receivables, and contingent liabilities. Developing these estimates inevitably involves subjectivity, and auditing estimates is often challenging and dependent on judgment. Discussion of these challenges in both PCAOB inspection reports and CAMs underscores the complexity of auditing estimates. For these reasons, audit committees should have a good understanding of how the management derives key estimates and how the auditor intends to approach its review of that work. While the PCAOB’s new estimates and specialists standards will not, in most cases, result in fundamental changes in the auditor’s work, the PCAOB staff’s paper is a reminder of the significance of estimates in most audits. The questions it suggests that audit committees consider provide a starting point for oversight of the auditor’s work in this area.

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