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SUMMARY:Auditing fair value measurements and other complex estimates (hereafter, FVMs) has received significant attention from regulators, practitioners, and researchers. Using a survey, we gather data from audit partners with FVM expertise to gain further insights in areas that have not been fully explored in the previous literature. Specifically, we extend the literature by providing a deeper understanding of the following areas: auditors' use of different substantive approaches to test higher-risk FVMs, auditors' use of pricing services and valuation specialists, and how challenges differ when auditing financial versus nonfinancial FVMs. In doing so, our findings and analyses extend prior research and coalesce pieces of several prior studies on auditing FVMs to provide a more complete picture of current auditing practices and challenges encountered by auditors. Our study provides insights useful in reconciling seemingly inconsistent findings in previous studies and provides important implications for future research, regulation, and standard-setting.

SYNOPSIS: The Sarbanes-Oxley Act of 2002 (SOX) established the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting firms that audit publicly traded companies in the United States. In this commentary we outline why we believe the PCAOB’s audit standard-setting and inspection models are inefficient and dysfunctional. We assert that the Board’s ability to achieve its mission is limited by its early choices, together with its incentives, organizational composition, and structure. We support our assertions with a number of indicators of serious problems and flaws in the current approach. We also present high-level recommendations for change for policy makers, regulators, and leaders in the profession to consider in developing improved approaches to audit standard setting, inspection, and enforcement.

Reported deficiencies continue to persist in audits of fair value measurements and other complex accounting estimates (hereafter, “FVMs”), despite improvements in auditor performance observed by regulators. The persistence of reported deficiencies in audits of FVMs suggests that factors underlying this trend may be more complicated and multidimensional than previously suggested by regulators and academic research, which has focused largely on auditors' unsatisfactory performance as the principal source of reported deficiencies. Drawing from the judgment and decision‐making expertise literature, we gather field‐based data from audit experts to identify additional factors that are likely to be contributing to differences of opinion between audit and inspection experts and the persistence of reported deficiencies in audits of FVMs. We find evidence that audit experts interpret standards and evaluate audit evidence differently than inspectors, and thus perceive there to be a gap between what auditors and inspectors regard as sufficient appropriate audit evidence to support audits of FVMs (hereafter, “FVM gap”). Moreover, results highlight several areas in audits of FVMs where differences of opinion exist between auditor and inspector experts regarding what constitutes a reported deficiency. Within the contexts we examine, our results identify additional factors, beyond deficient auditor performance, that may contribute to the FVM gap. We also report audit partners' recommendations for ways to reduce the FVM gap and suggest avenues for future research. Gaining a more complete understanding of sources contributing to reported deficiencies will help regulators, standard setters, audit firms, and academics to identify ways to reduce the FVM gap and reported deficiencies in audits of FVMs.

The purpose of this paper is to examine the audit fee premium to the Big 6 brand in the small and large client segments of the market for audit services. We use a sample of Australian fee data for the five‐year period 1995 to 1999. We find evidence of price premiums to Big 6 auditors in the small client segment. We do not find evidence of fee premiums in the large client segment. We also present evidence that audit fees are not linearly related to client size as is typically assumed in audit fee models.