CPAJ News Briefs

On June 1, the PCAOB proposed an expansion of auditors’ responsibilities for examining clients’ use of accounting estimates. The board said additional guidance is necessary because there has been a proliferation of complex accounting estimates in financial statements in the past several years, and auditors have had difficulty checking them. Estimates have a significant effect on a company’s financial results. But checking estimates has been challenging for auditors, because companies often use intricate processes and methods that involve subjective assumptions and measurement uncertainty, which are susceptible to management bias. PCAOB inspectors have found recurring problems in auditors’ reviews of clients’ accounting estimates, and the board said it needs to update its standards to better guide auditors. “While we cannot reduce the challenges inherent in auditing estimates, we can present clear standards that emphasize the importance of risk assessment, awareness of the possibility of management bias, and the need for professional skepticism to support the performance of high quality audits,” PCAOB member Lewis Ferguson said.