How Audit Firms Can Prepare for the Next Generation of PCAOB Expectations
For audit firms, regulatory change is nothing new. What continues to evolve is the level of attention being paid to the processes that support audit quality.
Recent PCAOB standards, guidance, and inspection observations reflect continued attention to areas such as audit evidence, documentation, risk assessment, the use of specialists, technology, and firmwide quality control.
That has particular implications for financial instrument valuations, where complex methodologies, third-party data, accounting estimates, and specialist judgment can intersect.
For audit firms, preparing for evolving PCAOB expectations isn't simply about responding to new rules. It's about building valuation and audit processes that can withstand scrutiny as expectations continue to change.
1. Build Quality Into the Process
One of the most significant developments for audit firms is the PCAOB's new quality control standard, QC 1000.
Currently scheduled to take effect December 15, 2026, QC 1000 establishes an integrated, risk-based approach to a firm's system of quality control. It requires firms to establish quality objectives, identify and assess quality risks, design and implement responses to those risks, and monitor their quality control systems.
The PCAOB proposed targeted amendments to QC 1000 in June 2026, but stated at the time that the proposal did not change the December 15, 2026 effective date. Firms should continue monitoring the final requirements as implementation approaches.
The broader takeaway is important: firms need processes capable of identifying and responding to risks to audit quality.
For valuation work, firms may want to consider questions such as:
Where are our highest-risk or most judgment-intensive valuations?
Are our valuation procedures appropriate for the risks of each engagement?
When does specialized valuation knowledge become necessary?
How are differences between management estimates, third-party pricing information, and other audit evidence evaluated?
Is the work sufficiently documented to support the conclusions reached?
Addressing questions like these proactively can help firms identify weaknesses before they become larger audit-quality issues.
2. Strengthen the Evidence Behind Valuations
PCAOB standards require auditors to obtain sufficient appropriate audit evidence, with appropriateness determined by both the relevance and reliability of that evidence.
That distinction matters when auditing financial instruments.
Information from a custodian, fund administrator, pricing service, management, or another external source may be useful evidence, but auditors still have responsibilities for evaluating whether the evidence is sufficient and appropriate in the circumstances.
In valuation work, that can require understanding more than the final reported price.
What information supports the valuation? How observable are the inputs? What assumptions significantly affect the estimate? Is the methodology appropriate? Is there relevant evidence that supports or contradicts management's conclusion?
The appropriate procedures will depend on the instrument, circumstances, and assessed risk. But the underlying principle is consistent: audit conclusions need to be supported by sufficient appropriate evidence.
3. Prepare for a More Technology-Assisted Audit
Technology is becoming a larger part of the audit process.
In 2024, the PCAOB adopted amendments to AS 1105, Audit Evidence, and AS 2301, The Auditor's Responses to the Risks of Material Misstatement, addressing certain audit procedures involving technology-assisted analysis of electronic information.
The changes recognize that auditors may use technology to analyze large populations of transactions and perform procedures in ways that were previously difficult or impossible.
But using better technology doesn't eliminate the auditor's responsibility to evaluate the evidence produced or used.
That principle is relevant to valuation technology as well.
A valuation platform can make a complex process faster and more efficient, but auditability still depends on what sits behind the result: the information used, assumptions applied, methodology selected, and evidence supporting the conclusion.
As audit technology develops further, transparency and the ability to understand how conclusions were reached will remain important.
4. Treat Documentation as Part of the Process
Documentation isn't simply an administrative step at the end of an audit.
PCAOB AS 1215 requires audit documentation to contain enough information for an experienced auditor with no previous connection to the engagement to understand the nature, timing, extent, and results of the procedures performed, the evidence obtained, and the conclusions reached.
The standard also recognizes that accounting estimates can involve greater judgment and, accordingly, require more extensive documentation.
That has clear implications for valuation work.
Depending on the circumstances, documentation may need to make it possible to understand:
what was valued;
the procedures performed;
the evidence obtained;
the significant assumptions or inputs considered;
how relevant conflicting evidence was addressed; and
how the resulting audit conclusion was reached.
For investments involving less observable market data or significant valuation assumptions — often including certain Level 2 and Level 3 instruments — the degree of judgment can increase, making clear documentation especially important.
5. Know When Specialized Expertise Is Needed
Complex financial instruments can require knowledge outside the core expertise of the engagement team.
PCAOB standards specifically address auditors' use of specialists. AS 2501 addresses auditing accounting estimates, including fair value measurements, while AS 1210 establishes requirements for using the work of an auditor-engaged specialist.
When specialized knowledge is necessary, firms may use auditor-employed or auditor-engaged specialists to assist in obtaining or evaluating audit evidence.
The auditor's responsibilities don't disappear when a specialist becomes involved. Rather, the specialist becomes part of a broader process designed to help the auditor evaluate the relevant financial statement assertions.
For firms that don't maintain every type of valuation expertise internally, having access to specialized external expertise can be an important resource.
6. Make Professional Skepticism Visible
Professional skepticism isn't just a concept. It should be reflected in the procedures performed and evidence obtained.
Depending on the nature and assessed risk of a valuation, that may include evaluating or corroborating pricing information, investigating unexpected differences, assessing significant assumptions, considering contradictory evidence, and documenting how the available evidence supports the conclusion.
A useful practical question for audit teams is:
"If another experienced auditor reviewed this work later, could they understand what we did, what evidence we considered, and how we reached our conclusion?"
That closely reflects the documentation principles already embedded in PCAOB standards.
Preparing for What Comes Next
Preparing for evolving PCAOB expectations doesn't require predicting the Board's next rule, inspection finding, or area of focus.
It means developing processes that are capable of adapting as standards, technology, markets, and audit risks change.
For valuation work, many of the fundamentals remain consistent: sufficient appropriate evidence, appropriate expertise, supportable methodologies and assumptions, clear documentation, and processes designed around the risks involved.
For more than 30 years, Harvest Investments has supported audit firms, financial institutions, and financial reporting professionals with independent financial instrument valuation services. Harvest's specialists and myPricingDesk platform provide access to transparent valuation methodologies, documented inputs and assumptions, valuation risk information, and solutions for simple and hard-to-value financial instruments.
As the audit environment continues to evolve, strong valuation processes can help firms do more than respond to regulatory change. They can make complex valuation work easier to understand, evaluate, and support.
