Auditing Challenging Fair Value and Other Estimates

The rising prominence of fair values and other estimates (FVOEs) in financial reporting, increase their significance to the audit. Based on inspections that report numerous deficiencies, the PCAOB is concerned that auditors are not sufficiently prepared for the challenges faced in evaluating fair value measurements. In this paper, for organize our discussion, we rely on an established theoretical research framework that examines auditor judgment through an analysis of three critical and interactive factors of the judgment process included the environment, the task, and the person. We believe the framework is particularly useful in understanding judgments related to the audits of FVOEs, because auditing have unique environmental and task factors shat cannot improve the quality of audit processes with addressing of auditor characteristics. Second, considering the PCAOB-identified practice areas with direct implications for the audits of FVOEs, we develop and present future research lines of inquiry that take into account the important interactions among the three framework factors.