PCAOB releases new standard on “Auditing Accounting Estimates, Including Fair Value Measurement” (AS 2501)
On December 20, 2018, the PCAOB adopted a new standard on “Auditing Accounting Estimates, Including Fair Value Measurement” (“new” ASC 2501). The standard replaces the “old” AS 2501, “Auditing Accounting Estimates”, and rescinds AS 2502, Auditing Fair Value Measurements and Disclosures and AS 2503, Auditing Derivative Instruments, Hedging Activities, and Investments in Securities. The PCAOB also amended a number of other PCAOB auditing standards which refer to accounting estimates to reflect the new guidance. The new standard and related amendments are meant to further investor protection by strengthening audit requirements, applying a more uniform, risk-based approach to an area of the audit that is of increasing prevalence and significance, and updating the standards in light of recent developments. Among others, the new standard requires a more uniform approach to substantive testing for estimates in significant accounts and disclosures, and provides further guidance on the auditing of financial instruments at fair value, including the use of pricing/valuation information from third parties such as pricing services, valuation specialists and broker/dealers.