[This story previously appeared in Securities Regulation Daily.]
By Anne Sherry, J.D.
The PCAOB is seeking public comment on standard-setting activities related to auditing accounting estimates and fair value measurements. The Staff Consultation Paper issued yesterday, part of the outreach efforts of the Office of the Chief Auditor, requests information and views on current audit practice, the potential need for changes to existing auditing standards, and possible alternative actions.
Issues with current auditing standards. Several factors point to a potential need for improvement, in the Office’s view, including (1) audit deficiencies noted by the PCAOB and other regulators; (2) changes in financial reporting frameworks relating to accounting estimates, including fair value measurements; (3) changes in the methods used to develop these estimates and measurements, including a growing reliance on third parties; and (4) auditors’ concerns over perceived inconsistencies in the existing standards.
Single standard and alternative approaches. To address these issues, the Office is considering developing and proposing to the Board a single standard to replace AU Sections 342 and 328 and some of the requirements of Section 332. The paper also outlines several alternative approaches, including issuing additional staff guidance; keeping existing standards in place and developing a separate standard on auditing fair value of financial instruments; and enhancing existing standards through targeted amendments. The staff noted that it is continuing to consider these alternative approaches, but posited that a single standard could provide a more comprehensive approach and promote consistency in auditor performance. Also, a single standard aligned with the risk assessment standards could help auditors improve their overall assessments of and responses to risks of material misstatement.
Key dates. The Board will host a meeting of its Standing Advisory Group in Washington, D.C., on October 2 to discuss matters related to auditing accounting estimates and fair value measurements. Comments on the Staff Consultation Paper must be received by November 3.