Audit regulators have issued four new pieces of guidance for auditors about how to comply with a new standard on auditing estimates as well as new rules on supervising and relying on the work of specialists.

In separate releases, the staff of the Public Company Accounting Oversight Board pays special attention not only to new requirements on how to audit estimates, but also how to audit the fair value of financial instruments, how to supervise or use the work of a specialist engaged by the auditor, and how to use the work of a specialist working on behalf of the company.

The new rules are contained in the PCAOB’s AS 2501, as well as amendments to AS 1105 and AS 1201, all of which take effect for audits of financial statements for fiscal years ending on or after Dec. 15, 2020. That means calendar-year companies will see the new standards at work in their audits of 2020 financial statements, the same year most public companies will provide their first reporting under the new CECL standards for credit losses.

The new accounting rules under Accounting Standards Codification Topic 326 require companies to adopt a current expected credit losses methodology for recognizing the state of debt-related financial instruments in financial statements beginning Jan. 1, 2020. Given the standard’s heavy reliance on judgments and estimates, many of which will be developed by specialists, the new standard will be front-and-center for auditors as they implement the new rules on estimates and specialists at the same time.

The guidance on auditing estimates maps out the key considerations for auditing accounting estimates under the new standard, which include identifying and assessing risk, responding to risk, and performing substantive testing. Auditors will need to focus on testing the company’s process, developing independent expectations, and evaluating subsequent events and transactions, which occur after the financial statement date but before the audit report is issued.

The staff alert on auditing fair-value measurements reminds auditors to get a good understanding of instruments as part of their risk assessments. That includes, for example, the terms and conditions, the extent to which values are based on observable versus unobservable inputs, and other factors affecting valuation, like credit or counterparty risk, market risk, and liquidity risk. The alert also reminds auditors to carefully consider the source of information used in fair-value measurement when it comes from pricing services, brokers or dealers, or other sources.

With respect to supervising or using the work of specialists engaged by the auditor, the PCAOB staff highlights the auditor’s duty to assign tasks, determine independence, assess knowledge and skill, and evaluate the work of specialists who may work as part of the audit engagement.

That’s similar but with important differences to assessing the work of a specialist engaged by the company. Auditors may rely on specialists for areas like valuations or legal interpretations. Experts like engineers or other scientists might also be important in evaluations of materials, property, plant, oil and gas reserves, and other assets or obligations.