PCAOB updates fair value audit standards

BVWireIssue #196-1
January 9, 2019

fair value for financial reporting
fair value, fair value measurements

Of interest to valuation specialists who do fair value work, the Public Company Accounting Oversight Board (PCAOB) has adopted a new standard for auditing accounting estimates, including fair value measurements, and amendments regarding specialists. The adopted amendments strengthen the requirements for evaluating the work of a company’s specialist that the company employs or engages, and they also apply to a supervisory approach to auditor-employed and auditor-engaged specialists.

There were a number of standards regarding the use of specialists depending on the different relationships the specialist had with the auditor. The prior standards have been combined into one standard for all specialists. This has been in the works for some time and moved forward without much controversy, based on the comment letters received. 

The new standard, Auditing Accounting Estimates, Including Fair Value Measurements replaces and streamlines three standards into one single, uniform standard updating the approach to auditing accounting estimates. The standard explains that auditors need to apply professional skepticism, which includes addressing potential management bias, when auditing accounting estimates. The new standard also offers a more specific direction on auditing fair values of financial instruments that are based on information from third-party pricing sources.

The new standards and amendments, subject to approval by the Securities and Exchange Commission, will be effective for audits of financial statements for fiscal years ending on or after Dec. 15, 2020.

Please let us know if you have any comments about this article or enhancements you would like to see.