External Audit and Fair Value Measurements

Fair value measurements represent a dramatically increasing percentage of accounting estimates in the financial statements, either under the IAS/IFRS and under the local GAAP of most European Countries including Italy. Fair value accounting is in fact spreading from public firms to private firms, as a consequence of the implementation of European Union directives on accounting harmonization. This book addresses the external audit procedures and techniques applied to complex fair value measurements in the current market environment. Fair value value measurements are often addressed to as hardly verifiable and auditable estimates. Yet, they must be audited and the international auditing standard directly address the intrinsic estimation uncertainty and the efforts the auditor must make. Recent audit experience highlighted the difficulties that occur in reviewing fair value measurements, when market information is either not available or sufficient information is difficult to obtain. Many regulatory authorities and other practitioners’ organizations have been considering which is the best way to assist preparers of financial statements and their auditors to deal with these difficulties. This book attempts to contribute to this debate and a twofold objective. Firstly, it jointly examines key fair value measurements and prescriptions of the international auditing standards. Secondly, it analyses how audit standards can be effectively applied to the review of fair value measurements and which are the most critical issues.