eThesis - School of Business electronic theses

RESEARCH OBJECTIVES:

The aim of this study was to investigate how do auditors attain the necessary assurance regarding fair value estimates. Audit risks concerning fair value estimates, the auditors' response to address those risks and specifically how do auditors cope with the challenges of verifiability, uncertainty and management bias in their audit work were all of particular interest. This study also examined how the new IFRS 13 fair value measurement standard would possibly impact the current practice of auditing fair values.

METHODOLOGY:

This study was done using qualitative interviews. Data was gathered by interviewing 5 auditors working for Big 4 audit firms (2 partners and 3 senior managers). Each respondent had at least 9 years of experience in auditing fair value estimates under IFRS. The interview was structured into two themes, and they were all recorded and extracted into writing.

RESULTS:

The primary audit risks concerning fair value estimates were accuracy, completeness, valuation and management override of controls. Internal control testing was considered only for items whose measurement process is either automated or is largely based on observable inputs. For estimates measured using unobservable inputs, auditors rely mainly on substantive testing, with substantive analytical procedures being most common. The auditors conduct the procedure by forming their own understanding on what the estimate should be by benchmarking the key inputs used behind the measurement against market data and actively using valuation experts. The new IFRS 13 standard did not have any major impact on auditing fair value. The minor impacts were simplifying the auditors work when looking for guidance and easing the argumentation process with the client. The standard's new disclosure requirements could help to shift part of the risk and responsibility concerning the estimates to the readers and users of the financial statement.