The U.S. Securities & Exchange Commission (SEC) has approved proposed rules by the Public Company Accounting Oversight Board (PCAOB) to revise auditing standards that increase oversight of specialists employed by accounting firms. The specialist category includes appraisers and other valuation experts, actuaries, legal specialists, and other experts. A new standard, Auditing Accounting Estimates, Including Fair Value Measurements (AS 2501), replaces three existing standards. Plus, AS 1210, Using the Work of a Specialist, has been retitled and replaced with a new AS 1210, Using the Work of an Auditor-Engaged Specialist. The amendments are effective for audits of fiscal years ending on or after Dec. 15, 2020.
One of the matters the new rules seek to reinforce is that of “professional skepticism.” That is, you should not simply corroborate the information you get from management or other third parties. You need to look at any negative evidence and address it. Not long ago, the PCAOB found that professional skepticism was lacking when a former Big Four auditor failed to adequately scrutinize accounts receivable, which may have led to an overvaluation of this asset. The auditor was censured, fined, and barred for two years.
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