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PCAOB Analysis Finds Increased Use of Specialists in Audit Engagements

S.J. Steinhardt
Published Date:
Dec 12, 2022

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The Public Company Accounting Oversight Board (PCAOB)’s 2019 standard for the auditor's use of the work of specialists that took effect for audits of fiscal years ending on or after Dec. 15, 2020 has resulted in more use of these outside specialists, an interim analysis by the Board has found.

“The new Specialists Requirements strengthen requirements for evaluating the work of a company’s specialist, whether employed or engaged by the company, and apply a risk-based supervisory approach to both auditor-employed and auditor-engaged specialists,” the report read.

A staff white paper found that "the probability that an auditor used an auditor-employed specialist on an audit engagement increased by a statistically significant 4.8 percentage points in the post-implementation period."

The standard for the use of outside specialists was approved alongside a related standard for the use of accounting estimates. “The new Estimates Requirements establish a uniform, risk-based approach to auditing accounting estimates and strengthening requirements under the existing substantive testing approaches,” the report said.

The estimates standard replaces three existing standards by establishing a single standard that sets forth a uniform, risk-based approach” emphasizing that “auditors need to apply professional skepticism, including addressing potential management bias, when auditing accounting estimates,” according to the PCAOB. “The new standard also provides more direction on addressing certain aspects unique to auditing fair values of financial instruments, including the use of pricing information from third parties such as pricing services and brokers or dealers.”

One of the report's key findings was that about one-third of the audit firms reported that the new estimates and specialists requirements improved auditing practices. Others reported that effects were limited and did not significantly change how engagement teams conducted audits.

Audit firms were also found to have had significant variation in the amount of time they spent to support implementation of the new requirements and in training firm personnel for these new requirements. At the audit engagement level, almost all firms and audit engagement partners reported that the new requirements did not result in significant increases in audit hours or audit fees.

To compile the report, the PCAOB surveyed “a selection of 17 U.S. audit firms, including nine annually inspected firms and eight of the larger triennially inspected firms” in in August 2021 “on the processes and procedures they developed to prepare for and implement the Estimates Requirements and Specialists Requirements, including associated costs.”

The participating firms developed infrastructure and conducted training to support the implementation of the estimates and specialists requirements by their audit engagement teams. Firms implemented the these requirements through a variety of initiatives including: revisions to audit methodologies and guidance; development of new or revised tools and work paper templates; training sessions to educate personnel on implementation of the new requirements and new or revised firm supporting tools; and ongoing engagement team implementation support and monitoring.

From August 2021 to February 2022, PCAOB staff conducted voluntary interviews of 31 engagement partners from the 17 audit firms that participated in the firm survey to seek “information about the experiences of engagement partners in implementing the Estimates Requirements and Specialists Requirements for audit engagements that involved more extensive use of the work of specialists and more complex accounting estimates.”

Between September 2021 and March 2022, the staff conducted in-depth interviews of 12 audit committee chairs and nine financial statement preparers from a total of 13 audit engagements, representing audits of four large accelerated filers and nine non-large accelerated filers to seek “insight regarding issuer experiences with auditor implementation of the Estimates Requirements and Specialists Requirements.”