The amount of subjectivity involved in establishing fair value estimates can be complex for management responsible for making the fair value measurements and disclosures contained in financial statements. This is particularly true for fair value measurements for which observable market prices are not available. Auditing standards require auditors to obtain sufficient appropriate audit evidence to provide rea- sonable assurance that fair value measurements and disclosures are in conformity with
accounting standards, and auditing standards provide guidance for auditing those measurements and disclosures contained in financial statements.
a. Visit the PCAOB’s website (www.pcaobus.org) to identify where in the PCAOB Auditing Standards guidance is provided for auditing fair value measurements and disclosures.
b. PCAOB auditing standards require the auditor to obtain an understanding of the en-
tity’s process for determining fair value measurements and disclosures. Identify five
things the auditor should consider when obtaining that understanding.
c. What should the auditor consider when engaging a specialist to perform substantive
tests related to fair value assertions?
d. Briefly describe the three types of substantive tests of fair value measurements that
the auditor may perform.
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