Regulators have responded to calls from the financial services sector to give auditors new guidance on how to audit fair-value measurements and impairments.

The Public Company Accounting Oversight Board published an audit alert that brings auditors up to speed on new fair-value and impairment guidance recently finalized by the Financial Accounting Standards Board. The alert tells auditors to take into account a package of controversial staff positions recently issued by FASB—one describing how to measure fair value when markets are inactive, a second amending impairment rules for certain debt securities so that only credit-related losses hit earnings, and a third that turns certain annual fair value disclosures into interim disclosures.

The alert describes the new accounting guidance to auditors and tells them it may have rendered some PCAOB standards obsolete. As such, it directs auditors to follow the accounting literature, not the auditing literature, where there may be conflict.

“The accounting standards set by FASB are recognized by the U.S. Securities and Exchange Commission as generally accepted,” says the alert. “Auditors should look to those standards and to the requirements of the SEC, rather than the standards of the PCAOB, for current accounting requirements and disregard descriptions of accounting requirements in PCAOB standards that are inconsistent with the FSPs.”

The alert is the first under the leadership of the PCAOB’s new chief auditor, Martin F. Baumann. “This alert is intended to remind auditors of their responsibilities in conducting reviews of interim financial information and annual audits in light of the new FSPs related to fair-value measurements and other-than-temporary impairments,” he said in a written statement. “The alert will be helpful to auditors as they conclude their work related to the first quarter of 2009 or prepare for the review of the second quarter and the audit of the financial statements, including the integrated audit.”

The PCAOB said it has a project in development to address standards related to auditing accounting estimates and auditing fair-value measurements. In that context, the board said it plans to remove descriptions of accounting requirements from those standards, taking similar measures as it revises any or all of its interim standards.

The PCAOB told its Standing Advisory Group it was considering audit guidance following FASB’s recent pronouncements. The board also received a letter from 15 financial services and business advocacy groups imploring guidance to assure auditors were in step with FASB and the Securities and Exchange Commission in following more moderate, less pessimistic views on fair-value measurements.

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