Officials from the Security and Exchange Commission and the Public Company Accounting Oversight Board cautioned a group of auditors against placing too much reliance on specialists hired for their expertise in areas such as fair value measurement.

Speaking at an auditing conference sponsored by the National Association of State Boards of Accountancy at Baruch College’s Zicklin School of Business, Marc Panucci, associate chief accountant in the SEC’s Office of the Chief Accountant, noted that executives often use specialists because the company does not have internal experts who can measure fair value. However, the specialist needs to be competent and able to understand the facts, circumstances, and assumptions, and use the appropriate models. If the fair value estimate is based upon trades, they should be based on transactions between a willing buyer and willing seller.

“Management needs to have an understanding of fair value,” Panucci cautioned. Otherwise, they need to take a step back and perhaps consult with legal counsel, he added.

PCAOB chief auditor Martin Baumann said the PCAOB is considering amending its standards on specialists. “The standard we have addresses the use of a management specialist and a specialist the auditor might engage,” he said. “We think there are differences, and we intend to probably break those out into two separate standards.” That would be similar to the approach of the International Auditing and Assurance Standards Board, he added.

The PCAOB wants to make it clearer what the auditor’s responsibility is with respect to the use of the work of a specialist, especially in evaluating the findings of the specialists.

“We have found in our inspections that too often auditors just take the findings of the specialists and use that work as acceptable evidence and not appropriately evaluate the work of the specialists or evaluate the credentials and independence of the specialists,” Baumann noted.


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