Help needed in research on fair value estimation

BVWireIssue #164-4
May 25, 2016

Last year, the Public Company Accounting Oversight Board (PCAOB) issued for public comment a staff consultation paper on potential standard-setting activities related to the auditor using the work of specialists, including valuation professionals. The University of Wisconsin-Madison is conducting a survey on the role of specialists in developing and evaluating the fair value estimates used in audited financial statements. This research may help in the PCAOB’s standard setting in this regard. You can take the survey if you click here. When you complete the survey, you will receive a $10 Starbucks gift card.

At the recent NYSSCPA business valuation conference in New York City, BVWire had the pleasure of speaking with one of the principal investigators on this research. Stephani A. Mason (DePaul University) told us that the data collected will be confidential and that a second phase of the study will involve optional interviews of survey respondents. Mason provided us with the following explanation of the research:

“As the use and complexity of financial instruments that require fair value measurement (FVM) has increased, so has the complexity of audit procedures required to determine the reasonableness of FVMs. Several studies and regulators have observed that some aspects of FVMs are relatively new and difficult for auditors as well as their clients. This difficulty in FVM has led to the widespread use of valuation specialists (specialists) by clients and auditors. Studies have focused on the auditors’ role in evaluating the clients’ FVMs and auditors’ use of valuation specialists’ reports, however there is little understanding on the valuation specialist’s process. Audit firms, the PCAOB (the Board) and academics have all indicated a need for a better understanding of what specialists do and how auditors work with specialists as evidenced in PCAOB Staff Consultation Paper No. 2015-01 The Auditors’ Use of the Work of Specialist and the comment letters issued in response to the more than forty questions raised by the Board. This study is designed to fill this knowledge gap and is important for several reasons. First, examining how specialists analyze FVMs is key to understanding the preparation of and the audit processes surrounding FVMs. Second, our study will also provide insights to auditors by enhancing the understanding of how specialists perceive and perform their tasks. Lastly, our research will inform regulators on the role valuation specialists play in determining and evaluating FVMs, and inform accounting educators seeking to prepare students with the procedural knowledge and skills necessary for effective preparation and audits of FVMs. This study has been funded by the IAASB (International Auditing and Assurance Standards Board).”

Extra: Two sessions have been added to the agenda of the 11th Annual Fair Value Conference in Los Angeles on June 8: Transaction Due Diligence Considerations with Mike Kim (Ernst & Young) and Contingent Consideration Task Force Update with Alok Mahajan (KPMG LLP). Check out the full agenda to this outstanding event.

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