PCAOB Scrutinizes Audit Firms' Use of Specialists
The Public Company Accounting Oversight Board has issued a paper examining potential changes to standards involving the use of specialists by auditing firms and is looking for public comments.
Staff Consultation Paper No. 2015-01, The Auditor's Use of the Work of Specialists, discusses the increase in the use and importance of specialists in recent years due, in part, to the increasing complexity of business transactions reported in a company's financial statements.
The PCAOB staff consultation paper focuses on the objectivity and oversight of specialists and the use of their work in audits. The paper raises questions about whether PCAOB standards adequately address the auditor's use of the work of specialists, and whether more rigorous standards and specific procedures are needed in this regard to help the auditor respond to the risks of material misstatement in financial statements. The staff is seeking input on possible alternatives to address the issues discussed in the paper.
“The use of the work of specialists is important to investors because it can help an auditor detect material misstatements in complex areas of a company's financial statements,” said PCAOB Chairman James R. Doty in a statement. “We want our standards to keep pace with realities in the marketplace, and I look forward to receiving public comment on this important topic.”
Auditors of many public companies increasingly use the work of specialists with expertise in fields other than accounting and auditing—such as valuation specialists, appraisers, engineers, and actuaries—who can bring necessary expertise to bear on complex areas, the PCAOB pointed out.
“This consultation paper is a key part of our outreach and seeks comments from all stakeholders," said PCAOB chief auditor and director of professional standards Martin F. Baumann. “The comments will inform the staff's potential recommendation that the Board propose changes to auditing standards governing the auditor's use of the work of specialists for the benefit of the investing public.”
The staff consultation paper solicits information and views from investors, accounting firms of all sizes, specialists, companies, and others. Comments are due July 31, 2015. A fact sheet on the consultation paper also is available.
The staff also is requesting information about current practices and the economic impact of potential changes to standards, including data, to inform the PCAOB's economic analysis associated with this project.
The PCAOB also announced Thursday that a Standing Advisory Group meeting on June 18, 2015, in Washington, D.C., will include, among other topics, a discussion of matters related to the auditor's use of the work of specialists. At the meeting, SAG members will be asked to provide views on important questions raised in the staff consultation paper.
The meeting agenda also includes an update on the staff's work in developing a new standard on auditing accounting estimates, along with a discussion of three areas where the staff is seeking SAG member views: emphasizing professional skepticism, addressing significant measurement uncertainty, and using third parties.
The SAG meeting also will include a discussion of recent PCAOB developments and the board's current standard-setting activities.
The meeting will be held at the Washington Plaza Hotel, 10 Thomas Circle NW, Washington, D.C., from 8:30 a.m. to 5:30 p.m. The meeting is open to the public and also webcast from the PCAOB's Web site.
The SAG includes investors, auditors, public company executives, and others. More information is available on the Standing Advisory Group is available on the PCAOB’s Web site.