The New AS 1210: Using the Work of a Specialist

Written By: Dan Coleman

The valuation and accounting for employee equity under ASC 718 can be quite material and has ramifications throughout your corporate financials. Some of the exhibits that will be affected are the income statement, the disclosures in your Summary Compensation Table in the Proxy, the effect on your annual say on pay votes, and other investor pay for performance testing.

Given the magnitude of stock-based compensation to your financials, we believe it is critical that your organization develop the appropriate controls and processes for validating the valuations and assumptions underneath the calculations. Typically, most stock options and performance share valuations will require either the Black-Scholes model, a binomial model, or a Monte Carlo simulation. These models will include assumptions such as expected volatility (peer, implied, or historical), expected dividend yields, treasury rates, correlation coefficients, along with any potential effects of illiquidity during mandatory holding periods. There can be hundreds or even thousands of required assumptions in some valuations. Further, given the facts and circumstances, some models are better equipped to best handle the terms and conditions of the instrument.

The new AS 1210: Using the Work of a Specialist, will be effective for audits of financial statements for fiscal years ending on or after December 15, 2020. Although there will not be a material change in the guidance, it will be important for all financial reporting managers to understand the new rules and their responsibilities.

Rulemaking History

The best guidance for auditing stock based compensation assumptions comes from the PCAOB on 10/17/2006, “AUDITING THE FAIR VALUE OF SHARE OPTIONS GRANTED TO EMPLOYEES”, which states that “the auditor should perform procedures in accordance with AU Section 328 to evaluate the assumptions developed by a specialist engaged or employed by management.” AU Section 328 points to the guidance of AU Section 336, “Using the Work of a Specialist”, (formerly known both as SAS 11 and SAS 73), which is now known as AS 1210. The new guidance will be adding an Appendix A to supplement AS 1105, which requires that the auditor perform the following procedures when using the work of a company’s specialist:

  • Obtain qualifications of the specialist’s work
    • The professional certification, license, or other recognition of the competence of the specialist in his or her field, as appropriate
    • The reputation and standing of the specialist in the views of peers and others familiar with the specialist’s capability or performance
    • The specialist’s experience in the type of work under consideration

Infinite Equity Note: A professional biography, a curriculum vitae, or a completed LinkedIn profile is typically sufficient.

  • Obtain an understanding of the nature of the specialist’s work
    • The objectives and scope of the specialist’s work;
    • The appropriateness of using the specialist’s work for the intended purpose;
    • The form and content of the specialist’s findings that will enable the auditor to make the evaluation;
  • Perform procedures to evaluate the work of a company’s specialist, including evaluating:
    • The data required for the work being performed;
    • The significant assumptions for the work being performed;
    • The methods (which may include models) used by the specialist;
    • The relevance and reliability of the specialist’s work and its relationship to the relevant assertion.

Infinite Equity Note: Typically, a well-written valuation report provided by the specialist will document both numbers 2 and 3 above. It may be necessary to further enhance the documentation to illustrate that the specialist is independent and is not a “related party” or has other conflicts of interest that may limit their independence.

  • Evaluate the relationship of the specialist to the company
    • Not limited to definition of “related parties”
    • Should look for any conflicts that could impair objectivity of the specialist

Infinite Equity Note:  Given the sensitivity of executive compensation programs and the magnitude of executive compensation packages, look to ensure the independence of your specialist.


There are many different control and auditing processes for service providers. When it comes to the valuation of stock based compensation and the subjectivity involved, the applicable guidance is from the new AS 1210 (sometimes referred to as AU 336 or SAS 73), which adds new clarifications around the use of a specialist. There will not be a need for any other audit processes such as a SOC1, SOC2, or SAS 70 in any way.


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