Auditors, Specialists, and Professional Jurisdiction in Audits of Fair Values
70 Pages Posted: 2 Jul 2014 Last revised: 24 Jan 2017
Date Written: March 1, 2015
Auditors frequently use valuation specialists to help them improve the quality of audits of fair values, but problems related to specialists’ involvement suggest specialists do not always improve audit quality. I interviewed 28 audit partners and managers with extensive experience using valuation specialists to investigate how auditors use valuation specialists in audits of fair values and how specialists’ involvement affects audit quality. I find that while valuation specialists perform many of the most difficult and important elements of auditing fair values, auditors retain responsibility for making overall conclusions about fair values. Collectively, the interviews reveal a tendency among auditors to make specialists’ work conform to the prevailing audit team view. This puts audit quality at risk. I apply Giddens’ (1990, 1991) theory of trust in expert systems to identify a root cause underlying this problematic tendency. The necessity of trusting in an expert system of valuation specialists causes tension for auditors who ultimately bear responsibility for judgments about fair values, yet who must rely on the expertise of specialists to make these judgments. Auditors’ tendency to make specialists’ work conform arises from this tension as a way to preserve their expert role. By identifying auditors’ tendency to make specialists’ work conform to their prevailing view and theorizing a root cause of this tendency, this study informs researchers, practitioners, and standard setters interested in improving audit quality in the fair value setting.
Keywords: Accounting estimates, Audit quality, Fair value, Specialist
JEL Classification: M40, M41, M42
Suggested Citation: Suggested Citation