Audit regulators are looking for input on whether and how to revise standards around the auditor’s use of the work of specialists.
The Public Company Accounting Oversight Board has issued a staff consultation paper that explores possible changes in the standards, especially focusing on the objectivity and oversight of specialists whose work auditors might rely on in the course of their audits. Reliance on specialists -- such as valuation experts, appraisers, engineers, and actuaries, for example -- has increased in recent years, and their work has become more important to financial statement audits, in part because the reporting of business transactions has become increasingly complex.
The input of specialists is important to auditors in cutting through the complexity, said PCAOB Chairman James Doty in a prepared statement. “We want our standards to keep pace with the realities in the marketplace, and I look forward to receiving public comment on this important topic,” he said.
The standards on the auditor’s use of the work of specialists have changed very little since they were adopted by the profession in the early 1970s and later adopted as interim standards by the PCAOB. The PCAOB has put into effect Auditing Standard No. 10 on the supervision of the audit engagement, but it focuses on an auditor’s use of specialists employed by the audit firm. The interim standard, AU Section 336 on using the work of a specialist, applies both to outside specialists engaged by the audit firm and those employed by or hired by the company being audited, such as its internal audit staff.
The PCAOB has raised objections in inspection reports to where and how auditors rely on the use of specialists, including a company’s internal audit staff, and the board called it out as a concern in October 2013 guidance to auditors on where they need to improve their work. Auditors’ reaction on that point has led to considerable tension between internal and external auditors over how companies can achieve a more efficient audit by increasing external auditors’ reliance on their work.
The consultation paper explores whether existing auditing standard adequately address the auditor’s use of specialists’ work, and whether audits could benefit from more rigorous standards or specific audit procedures to help auditors better respond to the risk of material misstatements. PCAOB staff is asking for alternatives on how to address the concerns through standard setting.
The PCAOB is asking for feedback to the consultation paper from not just audit firms, but also specialists typically engaged by auditors, companies, and others. In addition to seeking public feedback, which is requested by July 31, the board also plans to solicit the views of its Standing Advisory Group at its meeting in June.
"This consultation paper is a key part of our outreach and seeks comments from all stakeholders," said Martin Baumann, chief auditor and director of professional standards at the PCAOB. "The comments will inform the staff's potential recommendation that the Board propose changes to auditing standards."