How will AS 1210 Impact Your Company?

When the PCAOB issued the new AS 1210, Using the Work of an Auditor-Engaged Specialist, which replaces existing AS 1210, Using the Work of a Specialist, it amended two existing standards, AS 1105, Audit Evidence, and AS 1201, Supervision of the Audit Engagement. The new standards will go into effect for periods ending on or after December 15, 2020 (applicable to 2020 year-end audits).

The new standard defines a specialist as a person or firm possessing special skill or knowledge in a particular field other than accounting or auditing. Specialists could include attorneys, reserve engineers or actuaries, for instance. Consistent with existing guidance, the amendments identify and establish separate requirements for the following three types of specialists: Company Specialists (employed or engaged by the company); Auditor-Engaged Specialists (engaged by the auditor’s firm); and Auditor-Employed Specialists (employed by the auditor’s firm or by an affiliated entity that adheres to the same quality control and independence requirements).

Changes to existing guidance include the following:

Company Specialist. Applicable when the company uses the work of a specialist in the preparation of its financial statements. New guidance requires that auditors assess a specialist’s knowledge, skill and ability, along with the relationship between the company and the specialist, as well as the entity that employs the specialist if that specialist is not employed by the company. This assessment, combined with the risk of material misstatement, will impact the extent of evaluation of the specialist’s work.

The requirement of assessing the entity that engages the specialist may lead to additional auditor inquiries of both the company and the company’s specialist. Key changes included in the newly issued and amended guidance on evaluating the specialist’s data, assumptions and methods is outlined below:

  • Data:

Current guidance – test the data provided to the specialist, taking into account the auditor’s assessment of control

New guidance – test the company-produced data provided to the company’s specialist and evaluate the relevance and reliability of data from external sources

  • Assumptions:

Current guidance – understand the assumptions used

New guidance – evaluate significant assumptions

  • Method:

Current guidance – understand the method used

New guidance – evaluate whether the method is appropriate under the circumstances

The auditor does not need to re-perform the work of the specialist; rather, he or she must evaluate whether the specialist’s work provides sufficient appropriate evidence to support an opinion rendered on the financial statements.

Auditor-Engaged Specialist. The new guidance expands the requirements related to the auditor’s assessment of the knowledge, skill, ability and objectivity of the auditor-engaged specialist to the entity that employs the specialist. This, combined with the risk of material misstatement, will impact the auditor’s determination of the extent of the review and evaluation of the work of the specialist.

Auditor-Employed Specialist. The new and amended standards outline the extent of supervision, review and evaluation of the auditor-employed specialist’s work that is meant to be risk-based, and depends on (1) the significance of the specialist’s work to the auditors opinion; (2) the risk of material misstatement of the relevant assertion; and (3) the knowledge, skill and ability of the auditor-employed specialist relevant to the work to be performed. The supervisory requirements that apply to the auditor-employed specialist are aligned with existing requirements for supervising the engagement team.

The new and amended guidance is intended to promote effective communication and coordination between the auditor and specialist.

So how does all this impact your company? We recommend that you evaluate your internal controls over the assessment of the qualifications of the specialist and their employer, as well as their relationship with you. As part of your system of internal control over financial reporting, you may need to obtain additional information and documentation from your specialist in order to support your evaluation of the specialist’s methods, significant assumptions and external data. Auditors will need this information to support their audit procedures.

The PCAOB acknowledged in a release accompanying the new guidance the requirements to evaluate the work of a company’s specialist will have the greatest impact on audit costs. If you have any questions about how the change in guidance for Using the Work of an Auditor Engaged Specialist will impact your audit engagement, reach out to a member of the Schneider Downs SEC Industry Group.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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