<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Risks related to fair value (FV) estimates and their impact on the audit process represent a crucial topic in accounting and audit literature. Therefore, this paper focuses on one of the influential factors of FV estimation and related risks in audit missions, <italic>i.e.</italic> the valuation process performed (provider and measurement). In doing so, it addressees a less analysed FV level of estimation – level 3 according to IFRS 13, ’the models’, for the case of tangible assets. An experiment is conducted on a group of auditors, members of the Romanian audit professional body. The results reveal that, if the internal control quality is high, auditors differentiate between FV providers in the case of: FV measurement, i.e. income valuation approach versus cost approach, which implies additional effort for verification and risk of misstatement, when the estimation is provided by a third party instead of management. These findings could be related to the volatility of the investigated economic context and the respondents’ level of knowledge and expertise. We infer that respondents have a moderate understanding of valuation logic and methodology while excessively relying on their own valuator.</p>
</abstract>

Risks related to fair value (FV) estimates and their impact on the audit process represent a crucial topic in accounting and audit literature. Therefore, this paper focuses on one of the influential factors of FV estimation and related risks in audit missions, i.e. the valuation process performed (provider and measurement). In doing so, it addressees a less analysed FV level of estimation – level 3 according to IFRS 13, ’the models’, for the case of tangible assets. An experiment is conducted on a group of auditors, members of the Romanian audit professional body. The results reveal that, if the internal control quality is high, auditors differentiate between FV providers in the case of: FV measurement, i.e. income valuation approach versus cost approach, which implies additional effort for verification and risk of misstatement, when the estimation is provided by a third party instead of management. These findings could be related to the volatility of the investigated economic context and the respondents’ level of knowledge and expertise. We infer that respondents have a moderate understanding of valuation logic and methodology while excessively relying on their own valuator.

Challenges Faced By Auditors When Estimating Fair Values. An Experiment in an Emerging Economy

Studia Universitatis Babes-Bolyai Oeconomica

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Risks related to fair value (FV) estimates and their impact on the audit process represent a crucial topic in accounting and audit literature. Therefore, this...

Challenges Faced By Auditors When Estimating Fair Values. An Experiment in an Emerging Economy

Published Online: May 12, 2021

Page range: 36 - 60

DOI: https://doi.org/10.2478/subboec-2021-0003

Keywords
fair value audit, fair value complexity, estimation risks, fair value provider, tangible asset

© 2021 Adela Deaconu et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Challenges Faced By Auditors When Estimating Fair Values. An Experiment in an Emerging Economy

Published Online: May 12, 2021

Page range: 36 - 60

DOI: https://doi.org/10.2478/subboec-2021-0003

Keywordsfair value audit, fair value complexity, estimation risks, fair value provider, tangible asset

© 2021 Adela Deaconu et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
fair value audit, fair value complexity, estimation risks, fair value provider, tangible asset