Researches on Difficulties of Auditing Fair Values

Author:Maria Ionela DAMIAN, Ph.D. Student

JEL:M41, M42

DOI:

Keywords:auditing fair value estimates, PCAOB, AICPA, SAS 101, estimation uncertainty, significant assumptions

Abstract:
An increasing number of assets and liabilities are measured at fair value in the financial statements, this bringing to the fore not only the auditors’ need to understand the valuation models and the processes through which management has determined model inputs, but also the need to anticipate management’s likely errors and potential biases when applying the models, identifying market inputs and establishing assumptions. This paper brings into focus the difficulties encountered by auditors when auditing fair values, to what kind of deficiencies these difficulties might lead within audits and whether the complexity of fair value estimates won’t jeopardize auditor’s ability to provide a high level of positive assurance. The first part of the paper refers to prior research related to the procedures used for checking and attesting the fair value measurements by summarizing relevant literature. The second part’s aim is to study fair value audit deficiencies and subsequently identifies many situations in which audit procedures and tests done for checking fair value estimates failed or were not properly applied. The last part of the paper contains a practical study which evinces the high degree of assessment uncertainty carried by fair value estimates used in financial statements.\r\n

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