A Process Design for Auditing Fair Value

Melek Akgün, Davut Pehlivanli, Meltem Gürünlü

Abstract


Today, accounting standards are designed to reflect the current market conditions. At the same time, primary aim of the changes in standards is to enable financial statement users to evaluate risk structures of financial statements easily. The shift from historical cost approach to fair value applications may be interpreted within this context. The differentiation in the approaches has the advantage of reflecting the economic substance better but it may also cause uncertainty and subjectivity in financial reporting. Because of these two factors, auditing risk of financial statements is increasing.

After the Enron Scandal in 2001 and recent financial crisis in 2008, the probable adverse effects of accounting with fair value and auditing sensitivities are being discussed severely in the fair value literature (Laux and Leuz, 2009; Zhou and Ding, 2009;  Veron, 2008; Enria, A., Capiello, L., Dierick, Grittini, S., Haralambous, A., Maddaloni, A., Molitor, P., Pires, F. and Poloni, P., 2004;  Novoa, Scarlata and Sole, 2009; Gwilliam and Jackson,2008; Benston, 2008; Ronen, 2002). In many situations, auditing of fair value accounting and estimation of fair value in a verifiable and objective way becomes the core subject in this field.

This paper aims to analyze possible problems related to the auditing of fair value and model a process design to prevent these problems. More specifically, it aims to develop a conceptual model with reference to a case study on auditing of investment properties.


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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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