Fair Value Measurement: Practical Guidance and Implementation, 2nd Edition

CHAPTER THIRTEEN

Auditing Fair Value Measurement

Fair value measurement in financial reporting creates a challenge for auditors. Measuring fair value requires preparers of financial statements to apply judgment when selecting appropriate inputs, making adjustments to those inputs, selecting appropriate valuation methods, and making assumptions about future periods. Because of the complexity of fair value measurement, the financial statement preparer may retain an outside valuation specialist to assist with the measurement. The quality of the fair value measurement depends upon the preparer's judgment; therefore, auditing measurement also requires judgment.

The role of the auditor is to obtain sufficient competent audit evidence to provide reasonable assurance that fair value measurement is in conformity with Generally Accepted Accounting Principles (GAAP). These challenges are faced by auditors in the United States and worldwide as fair value measures become more extensive in financial reporting around the globe. The International Auditing and Assurance Standards Board (IAASB) describes some of the challenges that auditors face in obtaining sufficient competent audit evidence to opine as to the conformity of fair value measurements to accounting standards. Some of the audit challenges recognized by the IAASB include:

• The measurement objective, as fair value accounting estimates are expressed in terms of the value of a current transaction or financial statement items based on ...