PCAOB Seeks Input on Auditing Accounting Estimates, Fair Value Measurements
The US audit regulator, on Tuesday, distributed a staff consultation paper for public remarks on possible standard-setting activities related to accounting estimates and fair value measurement. The PCAOB Office of Chief Auditor is looking for the opinions to carryout changes in standards of PCAOB.
It has become challenging for the auditors to audit accounting estimates and fair value measurements because of the changes in financial reporting framework regarding accounting estimates and the increased use of fair value basis of measurement alongwith the increase in requirement of disclosures.
On Tuesday, PCAOB’s Chairman, James Doty, said that the accounting estimates and fair value measurement can be complicated, and these can be the significant portion of the entity’s financial statements and could be very important for the shareholder’s decision making.
The PCAOB and the foreign audit managers assume that complying with the audit requirements regarding accounting estimates and fair value estimates is of vital concern. Accounting estimates normally derive from an initial measurement, re-measurement or recording of transactions or events in the financial statements.
As per the US Generally Accepted Accounting Principles (GAAP), a fair value measurement is the amount that would be received to sell an asset or paid to transfer a liability between two participants at an arm’s length transaction.
PCAOB staff goes-on to evaluate the alternatives; it is thinking to make a single standard. The Office of the Chief Auditor is eager to receive the response, the possible change in the PCAOB standards and the possible alternates regarding the audit of accounting estimates, fair value measurement as well as the derivative instruments and securities.
PCAOB chief auditor, Martin Baumann, said that the staff consultation paper raises queries regarding the audit of accounting estimates and fair value measurement. Martin said that the public response we would gain would help us to inform our experts concerning the future plan of new auditing standard. The staff consultation paper contains specific questions for comments. Comments should refer to ‘Auditing Accounting Estimates and Fair Value Measurement’. All comments would be available to public. PCAOB intends to host a meeting to discuss the issues relating to the audit of accounting estimates and fair value measurement.