Fact Sheet: Adoption of an Auditing Standard on Accounting Estimates, Including Fair Value Measurements

December 20, 2018

The Public Company Accounting Oversight Board adopted a new standard on accounting estimates, including fair value measurements.

The new standard emphasizes that auditors need to apply professional skepticism, including addressing potential management bias, when auditing accounting estimates.

Details of the New Standard

The new standard replaces three existing standards by establishing a single standard that sets forth a uniform, risk-based approach. Auditing Accounting Estimates (AS 2501) will be updated and retitled Auditing Accounting Estimates, Including Fair Value Measurements (AS 2501). Two other standards, Auditing Fair Value Measurements and Disclosures (AS 2502) and Auditing Derivative Instruments, Hedging Activities, and Investments in Securities (AS 2503), will be superseded.

The new standard builds on the common approaches in AS 2501, AS 2502, and AS 2503 and strengthens existing requirements by:

  • Extending certain key requirements in the existing standard on auditing fair value measurements, the newest and most comprehensive of the three existing standards, to other accounting estimates in significant accounts and disclosures, reflecting a more uniform approach to substantive testing for estimates.
  • Focusing auditors on estimates with greater risk of material misstatement.
  • Prompting auditors to devote greater attention to addressing potential management bias in accounting estimates, as part of applying professional skepticism.
  • Providing a special topics appendix to address 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.
  • Making other updates to the requirements for auditing accounting estimates to provide additional clarity and specificity.

The final standard applies to all audits conducted under PCAOB standards.

Effective Date

Subject to approval by the Securities and Exchange Commission, the final standard and related amendments will take effect for audits of financial statement for fiscal years ending on or after December 15, 2020.


The financial statements of most companies reflect amounts in accounts and disclosures that require estimation, which may include fair value measurements or other types of estimates. These estimates appear in items like revenues from contracts with customers, valuations of certain financial and nonfinancial assets, impairments of long-lived assets, allowances for credit losses, and contingent liabilities.

As financial reporting frameworks evolve toward greater use of estimates, accounting estimates are becoming more prevalent and more significant, often having a significant impact on a company's reported financial position and results of operations.

Accounting estimates, including fair value measurements, generally involve subjective assumptions and measurement uncertainty, making them susceptible to management bias. Accounting estimates are often some of the areas of greatest risk in an audit, requiring additional audit attention and appropriate application of professional skepticism.

Auditing accounting estimates has proven challenging for auditors. PCAOB inspections continue to identify deficiencies at both larger and smaller audit firms in auditing accounting estimates, raising concerns about auditors' application of professional skepticism.

The Board also adopted amendments to its standards on using the work of specialists. Auditors use the work of specialists in auditing accounting estimates, including fair value measurements.

Project History

As part of the Board's research and outreach on auditing accounting estimates, the PCAOB:

  • Issued for public comment a staff consultation paper in August 2014.
  • Discussed the paper and public comments at meetings of the Standing Advisory Group in October 2014 and June 2015, and at a meeting of the Investor Advisory Group in September 2015.
  • Issued for public comment a proposal on auditing accounting estimates, including fair value measurement in June 2017.
  • Discussed the proposal and public comments at meeting of the Standing Advisory Group in November 2017.

Documents associated with this project can be found on the PCAOB website under Docket 043.