Auditing fair value measurements can be tricky for an auditor with no valuation experience. Nevertheless, auditors are expected to understand the valuation models and significant assumptions that affect value. The PCAOB 4010 report summarizes the PCAOB results of inspections. In the report issued on September 29, 2010, the PCAOB listed auditors’ failure related to auditing fair value measurements as a common deficiency.
The following is a list of some of the failures identified by the PCAOB:
- The failure to evaluate whether fair value measurements were determined using applicable valuation methods.
- The failure to obtain a sufficient understanding of valuations used in external valuation reports.
- The failure to evaluate the reasonableness of management’s significant assumptions. The PCAOB noted that in certain instances the auditor tested only through management inquiry and that was not sufficient.
- The failure to involve a valuation specialist to evaluate the reasonableness of assumptions when appropriate.
At Schneider Downs, our auditors reach out to our professionals in the Business Advisors Group who are trained, credentialed and experienced in performing and reviewing valuations. Our Business Advisory professionals assist the auditors in making sure that the valuation methods and significant assumptions used in fair value measurements are properly audited. If you have any questions related to fair value measurements, please contact Christy Samek in our Business Advisors Group at Schneider Downs at 412-697-5415.
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