Dive Brief:

• The Public Company Accounting Oversight Board warned auditors of risks from weak oversight of specialists who determine fair value, assess physical assets and provide other estimates that require focused expertise.
• Financial reporting frameworks increasingly rely on measurements of fair value and other estimates, “leading to a corresponding rise in the frequency and significance of the use of the work of specialists,” the PCAOB said in a staff report released Tuesday.
• “The specialist’s work is highly technical in nature and often is not entirely transparent to the auditor, who may not have complete access to the specialist’s work or the same level of knowledge and skill,” the PCAOB said.

Dive Insight:

Companies in many industries use a range of specialists, including actuaries, appraisers, attorneys and environmental engineers, according to the PCAOB, the federal watchdog of the accounting firms that audit publicly traded companies.

The specialists take on such tasks as assessing assets acquired and liabilities assumed in mergers, environmental remediation contingencies, goodwill impairments, the value of intangible assets, legal obligations, the condition of mineral reserves and the salvage values of properties, plants and equipment, the PCAOB said.

Without proper oversight of specialists, “there may be a heightened risk that the auditor’s work will not be sufficient to detect a material misstatement to the financial statements,” the PCAOB said.

Specialists who use artificial intelligence pose a growing challenge to auditors and, in turn, the PCAOB, according to Martin Mulyadi, an accounting professor at Shenandoah University’s School of Business.

“The PCAOB’s 2025 priorities underscore critical risks as audits increasingly rely on specialists using generative AI and emerging technologies,” Mulyadi said Thursday in an email response to questions.

“The biggest risk related to that is how rapid AI and emerging technology adoption outpace standards and auditors training,” he said. “That will definitely leave gaps for auditors when evaluating machine learning/AI/technology-generated models.”

Yet new technologies also bring opportunities, Mulyadi said. Auditors and accountants can try “to bridge the gap and try to equip themselves with the understanding of generative AI, emerging technologies and machine learning in accounting, which, admittedly, is still scarce.”

When evaluating the work of a company’s specialist, auditors need to test the accuracy of data and evaluate the relevance and reliability of data from sources outside the company, the PCAOB said.

Auditors also need to evaluate the assumptions used by a company specialist, including those provided by management and those focused on the ability of a company to reach a specific goal, according to the PCAOB. 

An auditor need not duplicate the work of a specialist, or ensure the work aligns with all technical aspects of the specialist’s field, the PCAOB said.

“Instead, the auditor’s responsibility is to evaluate whether the work of the company specialist provides sufficient appropriate evidence to support a conclusion” and aligns with the financial reporting framework, the PCAOB said.

A company board also plays a role in ensuring the integrity of work by specialists, Lara Long, a managing director at the business advisory firm Riveron, said in an email reply to questions.

"When specialists are engaged by either the company or their auditors, audit committees should ensure the specialists engaged have supportable, adequately provided qualifications,” she said.

Discussions between the company, its auditors and the specialist help affirm the integrity of an audit, Long said. Such discussions “document the overall internal control environment surrounding the use of the specialist," she said.