Audit regulators are thinking hard about whether they need to provide some guidance to auditors on where to pay close attention to audit work given extraordinary market conditions.

In a meeting with its Standing Advisory Group last week, the staff of the Public Company Accounting Oversight Board sounded off on a list of audit issues where it may be considering some new guidance— measuring fair value, credit default swaps, derivatives, allowances for loan losses, and other-than-temporary impairment, to name a few. Those are the hot-button issues raising blood pressures as companies, and especially financial institutions, wrestle with how to account for unprecedented chaos in financial markets.

Members of the SAG offered the staff a few more audit issues to consider exploring more closely. “There are banks where their trading prices are significantly less than their book values,” said SAG member Gaylen Hansen, an audit partner with Colorado regional audit firm Ehrhardt Keefe Steiner & Hottman. “It begs the question: How much more is out there? What does this mean for auditors? … Why weren’t there some early warnings on this?”

SAG member Joe Carcello, director of research for the Corporate Governance Center at the University of Tennessee offered an additional laundry list of areas where audits may be stressed as a result of recent market activity—contingencies that will arise from inevitable lawsuits or other kinds of guarantees, off-balance-sheet vehicles that will be moving back on to balance sheets, and internal controls that should have resulted in more disclosures around risky areas.

Carcello also suggested the staff think about how employee stock options will be valued. “Probably the most important determinant of the value of an option is volatility,” he said. “What are we going to use as volatility now? I don’t have an answer, but you might want to think about it.”

SAG member Greg Jonas, managing director at Moody’s, carried the list of potentially problematic audit issues even further—pressure to “cook the books” to achieve better results, how to assess whether an entity is a going concern, restructurings, and liquidity.

SAG member Lynn Turner, former chief accountant at the Securities and Exchange Commission, said there will be tension on any number of areas where reporting is based to some extent on historical information—revenue, cash flow, goodwill, value of inventory, and others. Where companies make estimates, for example, based on the collectability of receivables, “Maybe it was 2 percent in the past, but that’s not really going to work going forward,” he said.

PCAOB staff told the Standing Advisory Group its current priorities include completing an in-process standard on engagement quality review and developing new or revised standards around fair value and the use of specialists. The staff expects to publish a concept release on fair value and the use of specialists before the end of the year, and it expects to finalize by the end of the year its guidance on auditing internal control for smaller companies.

Into 2009, the staff expects to propose a new standard on the auditor’s use of confirmations to corroborate assertions in the financial statements and a new standard on the auditor’s obligation to identify and evaluate related parties and related-party transactions, as well as fraud risks. The staff acknowledged some of its work in 2009 will be driven by current regulatory direction related to market turbulence, including the recommendations of the Securities and Exchange Commission’s Advisory Committee on Improvements to Financial Reporting and the U.S. Treasury’s Advisory Committee on the Auditing Profession.