PCAOB staff guidance for new requirements on auditing accounting estimates (AS 2501), and auditor’s use of the work of specialists

On August 22, 2019, the PCAOB staff released four staff guidance documents to raise awareness and assist auditors in advance of the effective date of new estimates and specialists audit requirements. The requirements are effective for audits of financial statements for fiscal years ending on or after December 15, 2020.

Here is a link to the news release, Click Here

Focusing on the auditing of accounting estimates, the PCAOB has adopted AS 2501. The PCAOB adopted AS 2501 because, in the PCAOB’s own words:

“Why did the PCAOB adopt this standard?

The use of complex accounting estimates and fair value measurements continues to grow in financial reporting. As a result, the use of the work of specialists continues to increase in both frequency and significance. Estimates often have a significant impact on a company’s reported financial position and results of operations.

Accounting estimates are often some of the areas of greatest risk in an audit, requiring additional audit attention and appropriate application of professional skepticism.

The Board’s oversight activities have revealed a recurring pattern of deficiencies in this area. Over the years, PCAOB staff has provided guidance for auditors related to auditing accounting estimates, but this area remains challenging and practices among firms vary.”

Here is a link to AS 2501:  https://pcaobus.org/Standards/Auditing/Pages/AS2501.aspx

You might ask, why am I blogging about AS 2501 and the auditing of accounting estimates? Because these issues are important for management, and are or can become important for audit committees and/or boards, these can be challenging and complex issues, the PCAOB indicates that accounting estimates can be areas of greatest risk in an audit and has noted patterns of deficiencies, and these issue can present or can develop into Critical Audit Matters or CAMs. If you are involved in the accounting or auditing function, or in the oversight of an entity’s accounting or auditing (such the board or audit committee), I recommend that you click on the link above to AS 2501 and that you read the materials to get a feel for the new standard before then really diving into the detail. And the following are links to the four blog posts that I have written about CAMs (in order from the most recent post to oldest/earliest post: https://wp.me/p75iWX-im, https://wp.me/p75iWX-g4, https://wp.me/p75iWX-fr, and https://wp.me/p75iWX-df.


Remember, every case and situation is different. It is important to obtain and evaluate all of the evidence that is available, and to apply that evidence to the applicable standards and laws. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

I am also the Chair of the Business Law Section of the Bar Association of San Francisco.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

The following are copies of the tables of contents of three of the more formal materials that I have written over the years about accounting/auditing, audit committees, and related legal topics – Accounting and Its Legal Implications was my first formal effort, which resulted in a published book that had more of an accounting and auditing focus; Chapter 5A, Audit Committee Functions and Responsibilities, for the California Continuing Education of the Bar has a more legal focus; and the most recent Tate’s Excellent Audit Committee Guide (February 2017) also has a more legal focus:

Accounting and Its Legal Implications

Chapter 5A, Audit Committee Functions and Responsibilities, CEB Advising and Defending Corporate Directors and Officers

Tate’s Excellent Audit Committee Guide

The following are other summary materials that you might find useful:


Audit Committee 5 Lines of Success, Diligence, and Defense - David Tate, Esq, 05052018

COSO Enterprise Risk Management Framework ERM Components and Principles

From a prior blog post which you can find at https://wp.me/p75iWX-dk if the below scan is too difficult to read:

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