PCAOB Preparing New Rule for Audits of Accounting Estimates

The PCAOB staff plans to discuss auditors’ responsibilities for accounting estimates with the Standing Advisory Group in June.
Matthew HellerApril 9, 2015

The Public Company Accounting Oversight Board is moving closer to proposing a comprehensive new standard for audits of accounting estimates in financial statements.

Thomson Reuters reports that according to the standard-setting agenda the board updated on March 31, PCAOB staff is planning to discuss auditors’ responsibilities for accounting estimates with the Standing Advisory Group in June.

That discussion may help staffers as they work on a proposal the board plans to publish in the fourth quarter of 2015, Thomson Reuters said.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

Accounting estimates in historical financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The auditor is responsible for evaluating the reasonableness of accounting estimates made by management in the context of the financials taken as a whole.

“While some accounting estimates may be easily determinable, others are inherently subjective or complex,” AccountingWeb reported last year.

In August, the PCAOB issued for public comment a staff consultation paper on a new standard for auditing accounting estimates and fair value measurements. In their comments on the paper, Thomson Reuters said, the Big Four accounting firms “generally supported the development of a single standard on accounting estimates but said it may be difficult to develop a comprehensive solution for all firms and suggested providing application guidance” in part because different accounting estimates have different levels of complexity and risk.

According to Thomson Reuters, the board is also working on a related initiative to tighten auditors’ supervision of third-party specialists, such as appraisers, actuaries, and lawyers who provide information that is used in reviewing financial statements.

PCAOB officials and board inspectors are increasingly finding that audit firms mishandle their dealings with specialists and plans to issue a staff consultation paper in the second quarter to seek comments on the use of specialists and consider potential audit requirements, Thomson Reuters said.

4 Powerful Communication Strategies for Your Next Board Meeting