27 Aug 2014
Click here to read the PCAOB standard setting agenda.
The US Public Company Accounting Oversight Board (PCAOB) has observed over time what they consider to be significant audit deficiencies in auditing accounting estimates and fair value measurements. To help assess the potential need for changes to standards in this space, the staff of the US PCAOB’s Office of the Chief Auditor has released a consultation paper seeking information from respondents.
The PCAOB staff is considering ways to strengthen the auditing standards, including potentially providing more specific direction on what the auditor would be expected to do to evaluate the significant assumptions in making estimates and measuring fair values. For instance, where the company uses a specialist to develop an accounting estimate, the paper discusses that a potential standard could require that the auditor test the information provided as if it were produced by the company.
Areas the PCAOB has been focussing on include: current audit practices related to the use of third-party sources – including pricing services; the use of centralised pricing desks or groups by firms; and fair value measurements and the potential economic impacts of any changes. The PCAOB staff generally is considering retaining the approaches to substantive testing estimates and fair value measurements, which are testing management’s process, develop an independent estimate, or reviewing subsequent events or transactions.
The PCAOB’s Office of the Chief Auditor released its updated standard setting agenda in June. As the PCAOB’s standards apply to foreign private issuers, upcoming developments will be of interest globally.
On auditor reporting, the PCAOB plans to issue a re-proposal before finalising its standard. The changes are proving to be quite controversial in the US. Following its public meeting on the auditor’s report model at the beginning of April, the PCAOB extended the comment period to 2 May 2014. Staff are now analysing the comments before what the agenda confirms will be a re-proposal.
The IAASB on the other hand, expects to finalise its new reporting model by the end of 2014 and the EU has crystallised its requirements in the new EU Audit Directive and Regulation. In the UK, the new reporting model is heading into its second year of application.
Experts say that it is increasingly likely that there will be at least a few differences in the various auditor reporting requirements – at least in the short term. “That may not be a bad thing” said Diana Hillier, partner at PwC, “experimentation is valuable as the new model is being shaped – but ultimately convergence is desirable.”
|Related parties||New standard adopted in June 2014|
July – December 2014
|Disclosure of engagement partner and certain other participants in audits||New standard to be adopted|
|Auditors’ responsibilities with respect to other auditors and specialists (including multi-location audits)||Proposal|
|Auditing estimates, including fair values||Staff consultation (see summary above)|
|Quality control standards, including firm supervisory responsibilities||Concept release|
|Going concern||Proposal for potential revisions being considered|
|Subsequent events||Proposal for potential revisions being considered|
|Auditor independence, objectivity and professional scepticism (mandatory rotation)||Developments being monitored (e.g., experience with the new EU requirements)|