The Public Company Accounting Oversight Board (PCAOB) has just posted Auditing Fair Value Measurements and Using the Work of a Specialist, a briefing paper to be used by its Standards Advisory Group at their meeting on October 14-15, 2009. “The staff believes that a standards-setting project to revise its existing standards on auditing fair value measurements and using the work of a specialist may be appropriate for a number of reasons,” the report begins.

Information obtained from the Board's inspection and enforcement programs indicate that some auditors might not be exercising sufficient professional skepticism when performing audit procedures and evaluating results in higher risk areas of the audit. Fair value measurements and other accounting estimates [and the related use of a specialist] frequently entail elevated audit risk. Certain fair value measurements may present a greater risk of material misstatement due to the unobservable nature of certain key assumptions that drive the valuation. In addition, disclosures have become increasingly important in determining and understanding a company's financial position and operating results.

The Board also urges “strengthening” an auditor’s responsibility when evaluating a specialist’s work. For example, separate guidelines should apply when the auditor engages independent versus in-house specialists, as opposed to the current single standard. “Further, the existing standards have different direction for a specialist engaged by the auditor and a specialist employed by the auditor.” Given the similarities of these situations, it might be more appropriate to apply a single standard. To read the full report, click here.