The Public Company Accounting Oversight Board adopted a new standard to enhance the requirements that apply when auditing accounting estimates, including fair value measurements, and also adopted amendments to its auditing standards regarding specialists.

The new estimates standard replaces and streamlines three standards into one single, uniform standard updating the approach to auditing accounting estimates. The standard explains that auditors need to apply professional skepticism, which includes addressing potential management bias, when auditing accounting estimates. The new standard also offers a more specific direction on auditing fair values of financial instruments that are based on information from third-party pricing sources.

The adopted amendments strengthen the requirements for evaluating the work of a company’s specialist that is employed or engaged by the company, and also apply to a supervisory approach to auditor-employed and auditor-engaged specialists.

“The board’s action today comes after thoughtful analysis and extensive external engagement on the prevalent use of accounting estimates and the auditor’s use of the work of specialists, recognizing that these are both challenging areas of the audit that needed to be addressed,” said PCAOB Chairman William Duhnke in a statement. “These two standard-setting projects align with the PCAOB’s strategic priorities by enhancing our efforts to protect investors and strengthen auditing practices.”

The new standards and amendments, subject to approval by the Securities and Exchange Commission, will be effective for audits of financial statements for fiscal years ending on or after Dec. 15, 2020.