Wendy Stevens, a member of the Public Company Accounting Board's (PCAOB) Standing Advisory Group and a speaker at the Foundation for Accounting Education's Nov. 14 Auditing Standards Conference, said that the board wants auditors to move away from a checklist mentality and use more professional judgment, as evidenced by its most recent standards. The PCAOB, she said, doesn't want rote procedure; it wants quality. 

"What does quality mean? It's not a checklist, said Stevens, a partner at Mazars, who leads the firm’s Quality & Risk Management Team. "Most of us who use some sort of methodology, there's some sort of checklist. [But] quality comes from the top, quality is doing it right the first time and knowing when to ask the questions—because you don't always have the answers, [you need to know] when something's not just quite right, whether [from] a conflict perspective or a documentation perspective or an independence perspective."

She pointed to the new standard on auditing estimates, which was approved late last year. While she said the overall principles are not that different from what auditors are used to—exercising professional skepticism, striving to be independent and objective—the new standard "will force the judgment to the places that matter, to where there could have been mistakes." 

For instance, the new standard (which replaced three separate ones) specifically includes addressing potential management bias in accounting estimates as a part of applying professional skepticism, explicitly requires that auditors have a reasonable basis for assumptions and methods of developing independent expectations of an accounting estimate, and mandates that the auditor identify and provide examples of significant assumptions used by the company and describe matters the auditor should take into account when identifying those assumptions. Stevens said measures like these represent a significant amplification of professional skepticism.

A similar bolstering took place in the standard concerning the use of specialists, released at the same time. "The philosophy is pretty much the same" in that the auditor must still consider factors such as the objectivity and expertise of the expert," she said. But the new standard does include things like laying out the specific requirements for when an auditor can engage an outside expert; procedures to evaluate a company specialist's use of data, significant assumptions, and methods; as well as the reliability of the specialist's work and its relationship to the relevant assertion. 

She warned her audience to begin implementing this standard as soon as possible; while it goes into effect at the end of next year, she said, it will probably take time to fully put it into practice. 

"Everyone is struggling to get these standards in place and push out information and policies for their teams, from the biggest firms to the smallest ones. What you need to know, to take away, is that it is urgent to do the work in the first quarter. It's not what the standard says, but it will save you time if you don't want to redo and revisit things," she said. 

Another point in moving auditors away from a checklist mentality has been the introduction of the critical audit matters (CAMs) standard, which became effective for large accelerated filers this past June, and will be effective for everyone else at the end of next year. The PCAOB, when developing the standard, did not intend for CAMs to become "boilerplate" or standard across clients; the board wanted auditors to use real judgment in determining them. She conceded, however, that this may not always be easy for auditors. 

"Do not copy CAMs verbatim as you've done in the past with footnotes from public companies," she said. "CAMs need to be different for each of your clients and, of course, how could that possibly be since there are a lot of CAMs that sound the same? But when you look at the ones the Big Four put out already, you can see they change the way they're presented: the wording, the order; there are a lot of different ways to say the same thing but using different words."

Audit reports are generally expected to have at least one CAM, although Stevens said that, after some pushback from the auditor community, professionals do have the option to have none in the report if they don't find any CAMs. Still, this decision must be justified with an explanation. 

She also advised against treating CAMs like a checklist, particularly since there are six factors to consider when determining whether something arises to the level of a CAM. She said the PCAOB considers this a floor, not a ceiling, and wants auditors to think further than just those factors. 

"You cant stop there, you have to consider other factors," she said.