LATEST UPDATE

PCAOB Publishes New Resource to Help Smaller Audit Firms Address Challenges of Auditing Accounting Estimates

A new PCAOB publication, Audit Focus: Auditing Accounting Estimates, available on: https://pcaobus.org/resources/staff-publications/audit-focus--auditing-accounting-estimates, provides auditors with reminders and good practices regarding accounting estimates, an especially challenging aspect of financial statements.

Accounting estimates are pervasive in financial statements, often substantially affecting a company's financial position and results of operations. They generally involve subjective assumptions and measurement uncertainty, making them susceptible to management bias. Consequently, accounting estimates are often some of the areas of greatest risk in an audit.

The PCAOB’s inspection staff continue to identify deficiencies related to auditors’ testing of accounting estimates. The deficiencies include, among others, not identifying the significant assumptions used by the company to determine an accounting estimate.

This edition of Audit Focus shares:

• Key reminders for auditors concerning the PCAOB standards related to auditing accounting estimates
• Staff’s perspectives on common deficienciesin auditors’ work
• Good practices implemented by audit firms that audit smaller companies in the area of accounting estimates.