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PCAOB Proposes to Enhance Requirements for Auditing Accounting Estimates, Including Fair Value Measurements

  • PCAOB (US Public Company Accounting Oversight Board) (dark gray) Image

Jun 01, 2017

On June 1, 2017, the Public Company Accounting Oversight Board (PCAOB) issued for public comment a proposal to enhance the requirements that apply when auditing accounting estimates, including fair value measurements.

The proposal emphasizes that auditors need to apply professional skepticism and devote greater attention to potential management bias when auditing accounting estimates.

Auditing certain accounting estimates has proven challenging to auditors. PCAOB inspectors continue to identify deficiencies at both larger and smaller audit firms in auditing accounting estimates, raising concerns about auditors' application of professional skepticism and consideration of potential management bias.

The proposed single standard builds on the common approaches in AS 2501, AS 2502, and AS 2503 and strengthens existing requirements by:

  • Prompting auditors to devote greater attention to addressing potential management bias in accounting estimates, while reinforcing the need for professional skepticism;
  • Extending certain key requirements in the existing standard on auditing fair value measurements — the newest and most comprehensive of the existing standards on auditing accounting estimates and fair value measurements — to all accounting estimates to reflect a uniform approach to substantive testing;
  • Focusing auditors on estimates with greater risk of material misstatement;
  • Providing specific requirements and direction to address certain aspects unique to auditing the fair value of financial instruments, including the use of information from pricing sources; and,
  • Making other updates to the requirements for auditing accounting estimates to address particular aspects of auditing estimates.

The Board requests public comment on its proposal by August 30, 2017.

Review the press release and proposal on the PCAOB's website.

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