The PCAOB is warning auditors of the risks from weak oversight of specialists who determine fair value, assess physical assets and provide other estimates that require focused expertise.
Financial reporting frameworks increasingly rely on measurements of fair value and other estimates, “leading to a corresponding rise in the frequency and significance of the use of the work of specialists,” the PCAOB said in a staff report.
“The specialist’s work is highly technical in nature and often is not entirely transparent to the auditor, who may not have complete access to the specialist’s work or the same level of knowledge and skill,” the PCAOB said.
When evaluating the work of a company’s specialist, auditors need to test the accuracy of data and evaluate the relevance and reliability of data from sources outside the company, the PCAOB said.
Auditors also need to evaluate the assumptions used by a company specialist, including those provided by management and those focused on the ability of a company to reach a specific goal, according to the PCAOB.
An auditor need not duplicate the work of a specialist, or ensure the work aligns with all technical aspects of the specialist’s field, the PCAOB said.
“Instead, the auditor’s responsibility is to evaluate whether the work of the company specialist provides sufficient appropriate evidence to support a conclusion” and aligns with the financial reporting framework, the PCAOB said.