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Expected Release Date for Accounting Estimates and Specialists Proposals Slides to End of Year

The PCAOB’s planned publication dates for the related proposals on accounting estimates and the use of specialists has slipped to the fourth quarter of 2016. The planned standards are seen as important because they are meant to address developments in business transactions and among public accounting firms from the past several years. As business transactions have grown more complicated, auditors have relied more heavily on outside parties to bring in specialized knowledge. PCAOB inspectors have also found a worrisome number of flaws in auditors’ examinations of fair value accounting.

The PCAOB’s planned publication dates for the related proposals on accounting estimates and the use of specialists has slipped to the fourth quarter of 2016.

The development is the latest in a series of indications that the board’s rulemaking is continuing to follow its slow pace of recent years. Most notably, the board’s scheduled publication dates have repeatedly been delayed as its final rules and proposals are subject to extensive reviews by the PCAOB staff and regulators from the SEC, who must approve each PCAOB decision before it can become final.

As recently as last fall, the board still expected to release the proposals by the second quarter of 2016. By the end of 2015, when the board released its latest standard-setting agenda, it said the standards would be out in the third quarter. The next update to the standard-setting agenda is expected to be out by the end of March, according to Barbara Vanich, an associate chief auditor with the PCAOB. The agenda will include an updated schedule for standard-setting activity.

The news about the expected publication of the proposals in the fourth quarter was made by Jay Hanson, a PCAOB member, during the March 15, 2016, meeting of the FASB’s Financial Accounting Standards Advisory Council (FASAC). Hanson did not elaborate on the schedule or the reasons for the later publication date, but it was only a year ago that the audit regulator was publicly criticized by the SEC’s chief accountant for the slow pace of its rulemaking.

The planned standards for audits of accounting estimates and auditors’ reliance upon specialists, such as appraisers and actuaries, are seen as important because they are meant to address developments among public accounting firms from the past several years. As business transactions have grown more complicated in recent years, auditors have relied more heavily on outside parties to bring in specialized knowledge, the board said in Staff Consultation Paper No. 2015-01 , The Auditor’s Use of the Work of Specialists, from May 2015. The specialists may help some auditors be more alert to financial misstatements.

In the past decade, fair value accounting has become more widely applied, and the accounting guidance for it went through a major revision with the FASB’s 2006 publication of SFAS No. 157, Fair Value Measurements, (Topic 820). Along with the changes to fair value accounting, PCAOB inspectors have observed that auditors frequently mishandle their examinations of clients’ application of fair value, the board said in Staff Consultation Paper: Auditing Accounting Estimates and Fair Value Measurements , from August 2014.

The problems have been significant enough to catch the SEC’s attention and spur the agency to push the board to move forward with the projects. The standard-setting projects are closely linked, and the PCAOB wants to issue the proposals for public comment at the same time.

For the auditing of accounting estimates, the audit regulator is writing a single standard to replace AU Section 342, “Auditing Accounting Estimates,” (AS 2501), and AU Section 328, “Auditing Fair Value Measurements and Disclosures,” (AS 2502), and replace some or all of the requirements in AU Section 332, “Auditing Derivative Instruments, Hedging Activities, and Investments in Securities,” (AS 2503).

The specialist guidance essentially dates from the publication of AU Section 336, “Using the Work of a Specialist,” (AS 1201) in the 1970s. The standard deals with auditors’ oversight of third-party specialists. It also applies to the auditor’s use of the work of a professional hired by an auditing client. PCAOB officials said the standard needs updating.

Auditing Standard (AS 10) No. 10 , Supervision of the Audit Engagement, (AS 1201) deals with auditors’ supervision of in-house specialists. It lays out basic principles but does not provide specific direction for applying the requirements.

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