CPE

An updated look at SAS No. 144

March 11, 2025

6 min read

Overview of SAS No. 144

Statement on Auditing Standards No. 144, Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information from External Information Sources, was fully effective for audits of financial statements for periods ending on or after December 15, 2023. In summary, the standard enhances guidance for both evaluating management’s use of an external specialist to develop and accounting estimate and the auditor’s direct use of a specialist in performing audit procedures.

The goal of updating SAS No. 144

The primary objective was to improve the overall quality of financial statement audits and converge with international auditing standards and PCAOB guidance related to audits of issuers. There were numerous minor wording changes and other enhancements to improve consistency amongst various AU-C sections and clarity of application of already existing requirements.

SAS No. 144 promulgates a principles-based approach to obtaining and evaluating audit evidence, particularly auditing accounting estimates. A goal was to ensure that when a specialist has prepared information used as audit evidence, the auditor needs to evaluate their competency, capability, and objectivity to understand their work and the appropriateness to achieving audit objectives.

For example, the following are important questions for an auditor to ask:

Are significant assumptions used by the specialist appropriate (e.g., generally accepted, consistent with industry best practices, reflective of the entity’s specific facts and circumstances)?
Are methods used by the specialist appropriate (e.g., consistent with the applicable financial reporting framework and mathematically accurate)?
Is the source of data relevant and reliable considering the results of auditor’s procedures over such data (e.g., the quality of evidence provided to the specialist by the audited entity)?
Are the findings and conclusions of the specialist relevant and reliable (e.g., consistent with other audit evidence, free of inappropriate restrictions or disclaimers)?
Is the work of the specialist sufficiently free of bias on the part of audited entity management?

The three amendments changed in SAS 144

AU-C Section 501, Audit Evidence— Specific Considerations for SElected Items

AU-C Section 501, Audit Evidence – Specific Considerations for Selected Items, was amended to provide more guidance related to evaluating the work of a management’s specialist. A management’s specialist is defined as an individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements (e.g., actuaries, engineers, and valuation experts). Using the work of an external inventory-taking firm is no longer referred to as using the work of a “management’s specialist” in the application guidance of AU-C Section 501, but guidance related to evaluating this form of audit evidence is retained.

AU-C Section 500, Audit Evidence

AU-C Section 500, Audit Evidence, added a new appendix entitled “Use of Pricing Information from Third Parties as Audit Evidence” to provide guidance for better evaluating estimates related to the fair value of financial instruments. A pricing service is an organization that routinely provides uniform pricing information to users, generally on a subscription basis. However, a pricing service may be engaged to develop a price for a specific financial instrument not routinely priced for its subscribers. This may include a pricing source used by an investment manager or custodian.

AU-C Section 620, Using the Work of an Auditor's Specialist

AU-C Section 620, Using the Work of an Auditor’s Specialist, enhanced various application guidance related to this section. The auditor must evaluate the adequacy of a specialist’s work for the auditor’s desired purpose. This includes evaluating their competence, capability, and objectivity. It also includes evaluating the appropriateness of assumptions and methods used as a part of ensuring a quality audit.

Improving audit quality with SAS No. 144

The amendments introduced by SAS No. 144 enhance audit quality by providing clearer guidance and more robust frameworks for auditors when dealing with specialists and external information sources.

Enhanced evaluation of specialists

By requiring auditors to evaluate the competency, capability, and objectivity of specialists, SAS No. 144 ensures their work is reliable and relevant and reduces the risk of relying on inaccurate or biased information. Also, by focusing on significant assumptions and methods used by specialists, auditors ensure that they are appropriate and consistent with industry standards and the specific circumstances of the entity being audited.

Improved consistency and clarity

The amendments bring more consistency across the AU-C sections, helping auditors apply the standards in a more uniform manner, reducing amiguity and enhancing the reliability of the audit procedures.

By aligning with international audit standards and PCAOB guidance, SAS No. 144 facilitates a more standardized approach to audits, which is particularly beneficial for multinational entities and auditors working across different jurisdictions.

Guidance on Pricing Information

The addition of guidance on using pricing information from third parties helps auditors better evaluate fair value estimates, particularly for complex financial instruments. This is crucial in ensuring that financial statements reflect accurate valuations, which is a key aspect of audit quality. By addressing the use of pricing services, the standard helps auditors understand when and how to rely on such services, making sure that the pricing information used is appropriate and reliable.

Focus on Audit Evidence

The principles-based approach to obtaining and evaluating audit evidence encourages auditors to critically assess the quality and relevance of the evidence they gather. This approach helps auditors focus on the substance of the evidence rather than merely its form, leading to more thorough and effective audits. By emphasizing the need to evaluate the relevance and reliability of data sources, the standard ensures that auditors are not just collecting evidence but are also critically assessing its quality.

Reduction of Bias and Objectivity Concerns

By requiring auditors to assess the potential bias in the work of specialists, SAS No. 144 helps ensure that audit conclusions are not unduly influenced by management or other parties. This enhances the objectivity and independence of the audit process.

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