Company Valuation Specialists’ Interactions with Management and Auditors: A Field Study
51 Pages Posted: 22 Sep 2018 Last revised: 11 Jan 2019
Date Written: January 2019
Management often relies on specialists for valuing complex fair value measurements (FVMs), auditors frequently rely on those FVMs as audit evidence, and the PCAOB has documented persistent problems in the audit of FVMs. Based on in-depth interviews with Norwegian audit partners and company valuation specialists, I find that auditors’ lack of valuation knowledge and auditor specialists’ lack of asset-specific expertise may lead to deficiencies in their understanding of how assumptions and parameters used in FVMs interretate, with consequences for auditors´ ability to discover materially misstated fair values. The findings further suggest that company specialists are not immune to management pressure and I document several tactics management employs to inflate their specialist assisted FVMs. The results corroborate and explain recent findings in the financial archival literature on the reliability of FVMs, and enhance our understanding of the audit quality deficiencies documented by the PCAOB and other regulators.
Keywords: Fair value measurements, auditors, company specialists, auditee management, various types of FVMs
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