What Was Changed
The new standard replaces three existing standards by establishing a single standard that sets forth a uniform, risk-based approach. It emphasizes that auditors need to apply professional skepticism, including addressing potential management bias, when auditing accounting estimates.
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.
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(AS 2502) and Auditing Derivative Instruments, Hedging Activities, and Investments in Securities (AS 2503), will be superseded.
Additional information on the new auditing standard:
- SEC Action: Release No. 34-86269
- Auditing Standard: AS 2501, Auditing Accounting Estimates, Including Fair Value Measurement
- Adopting Release: PCAOB Release No. 2018-005
- Fact Sheet: Adoption of an Auditing Standard on Accounting Estimates, Including Fair Value Measurements
- Project History: Auditing Accounting Estimates, Including Fair Value Measurements
Why Did the PCAOB Adopt This Standard?
The use of complex accounting estimates and fair value measurements continues to grow in financial reporting. As a result, the use of the work of specialists continues to increase in both frequency and significance. Estimates often have a significant impact on a company's reported financial position and results of operations.
Accounting estimates are often some of the areas of greatest risk in an audit, requiring additional audit attention and appropriate application of professional skepticism.
The Board's oversight activities have revealed a recurring pattern of deficiencies in this area. Over the years, PCAOB staff has provided guidance for auditors related to auditing accounting estimates, but this area remains challenging and practices among firms vary.
What Are the Effective Dates?
The new standard and related amendments are effective for audits of fiscal years ending on or after December 15, 2020.
The PCAOB staff provides guidance that highlights aspects of the new standard and enhancements made to integrate the Board’s risk assessment requirements when auditing accounting estimates, including fair value measurements.
- Auditing Accounting Estimates (Aug. 22, 2019)
- Auditing the Fair Value of Financial Instruments (Aug. 22, 2019)
Staff Presentation (May 2020)
The PCAOB staff produced a video on the implementation of Auditing Accounting Estimates, Including Fair Value Measurements.
We welcome your feedback and questions. After you've watched the video, please compete this short survey.
Assessing Initial Implementation
PCAOB staff will conduct economic analysis to assess the initial implementation of the new requirements for using the work of specialists and auditing accounting estimates.
To inform the analysis, the staff will analyze relevant data, conduct surveys, and interview stakeholders. The staff will also issue a request for comment to collect information on initial experiences with the new requirements.
The PCAOB expects to produce a report in 2022 to communicate findings and perspectives on the initial impact of the new requirements.
Evaluating Overall Impact
Because some of the effects of the new requirements may take several years to fully manifest or stabilize, after a reasonable period of time, the PCAOB will conduct a full post-implementation review.
The staff will reevaluate the costs and benefits of the new requirements, including any unintended consequences, to understand the overall impact on the audit profession, public companies, and users of financial statements.