What Recent PCAOB Inspection Findings Mean for Valuation Risk
Every year, the PCAOB's inspection reports offer a window into where audits are falling short - and this year's findings have a clear through-line: valuation risk. Not because investments are necessarily being valued wrong, but because the evidence, documentation, and process behind those valuations often can't hold up under scrutiny.
That distinction matters. For fund managers, financial institutions, and valuation teams handling complex or illiquid assets, these findings aren't just an audit-firm problem - they're a preview of the questions you should expect from auditors, regulators, and investors.
Here's what stood out, and what it means for how valuation work should be built.
1. Sample Sizes Are Getting More Scrutiny
One recurring deficiency: audit firms using sample sizes too small to generate sufficient evidence - often because they didn't account for the makeup of the population being tested, or leaned on unsupported assumptions about internal controls.
Relevant standards: AS 2315.16, .23, .23A; AS 2301.16, .18, .37
The takeaway: when a portfolio spans a wide range of asset types, risk profiles, or valuation methods, a one-size-fits-all sampling approach won't cut it. Insufficient sampling leaves gaps, and gaps are where valuation issues go unnoticed.
Where Harvest fits in: We build valuation methodologies and documentation designed to hold up under exactly this kind of scrutiny, with a clear line of sight into the data, assumptions, and market observations behind every number.
2. Custodian Statements Aren't the Finish Line
Inspectors also flagged firms leaning too heavily on trustee or custodian statements as their primary evidence for investment values - without enough independent work layered on top.
Relevant standard: AS 2501.07
Third-party data is a useful input. It's not a substitute for verification. Pricing information from custodians and trustees should be evaluated, challenged, and corroborated - not simply accepted at face value.
Where Harvest fits in: Our pricing and valuation work is built on documented market observations and independent methodologies, not a single external source. The goal is to add confidence to the number, not just repeat it.
3. Fair Value Classifications Need to Be Defended, Not Just Filed
A third theme: cases where specialists identified differences between management's fair value hierarchy classifications and their own, and those differences went uninvestigated.
Relevant standard: AS 2301.08
Fair value classifications under ASC 820 aren't a formality. They signal how much judgment went into a number, which makes discrepancies worth real analysis, not a passing glance.
Where Harvest fits in: Our valuation specialists work across a wide range of complex instruments and partner with clients to make sure classifications are backed by market data, defensible inputs, and the relevant accounting guidance - not just a checkbox.
4. NAV Is a Starting Point, Not an Answer
For NAV-based investments, inspectors found cases where auditors relied on NAV pulled straight from a fund's website, without further substantive work.
Relevant standard: AS 2501.07
NAV can be a legitimate practical expedient. But it doesn't excuse skipping the underlying questions: What's actually in the fund? What are the redemption restrictions? How liquid is it, really? Those factors can move the real value away from the headline NAV.
Where Harvest fits in: We provide valuation support across private loans, private placements, structured products, and other hard-to-value assets, built on market observations, liquidity analysis, and documentation that goes well beyond a single reported figure.
5. Independence Is Still Non-Negotiable
Separately, the PCAOB cited cases where firms didn't properly assess the independence implications of participating in accounting alliances. It's a different category of finding, but it cuts to the same place: the credibility of the financial reporting itself.
Where Harvest fits in: We maintain documented independence from client-provided pricing and valuation conclusions. Our job is to be the objective layer that clients, auditors, and regulators can actually rely on.
The Common Thread: Process, Not Just Pricing
Across every one of these findings, the PCAOB kept coming back to the same idea: professional skepticism. Not accepting numbers - whether from a custodian, a fund website, or a specialist - without asking what's behind them.
For valuation professionals, that means continuously testing methodologies, assumptions, and evidence rather than treating any single data point as the final word.
Where This Leaves Valuation Teams
The thread connecting all of these findings - sampling, third-party verification, fair value classification, NAV, independence - is the same: valuation risk rarely comes down to one bad number. It comes from gaps in the process used to support and defend that number.
For more than 30 years, Harvest has helped auditors, financial institutions, valuation specialists, funds, banks, and insurance companies navigate exactly this kind of complexity - through independent pricing, valuation advisory, specialized loan pricing, and enterprise solutions built for transparency.
As regulatory expectations keep tightening, the organizations in the best position tomorrow are the ones investing in stronger valuation processes today.
