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

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.

Perspectives of accounting professionals about the adoption of IFRS for SMEs: the case of Romania

“…(2009) noted that each user of a SME’s financial statements is interested in specific financial accounting information, supporting these claims. To ascertain the primary users of financial statements at the national level, research has been undertaken to identify the subsequent groups:State (Bunea et al ., 2012; Deaconu et al ., 2012)Banks (Deaconu et al ., 2012; Masca et al ., 2010)Managers/Stakeholders (Albu et al ., 2013; Deaconu et al ., 2012)…”

“…(1) State (Bunea et al, 2012;Deaconu et al, 2012) (2) Banks (Deaconu et al, 2012;Masca et al, 2010) (3) Managers/Stakeholders (Albu et al, 2013;Deaconu et al, 2012) More than a decade ago, Albu et al (2010) conducted a comprehensive analysis of the potential adoption of the standard in Romania. The study aimed to identify potential distortions in the standard's application and associated issues.…”