The Auditor-Valuation Specialist Coopetitive Alliance in the Fair Value Audit of Complex Financial Instruments

77 Pages Posted: 1 Jul 2020 Last revised: 2 Nov 2020

See all articles by Dereck Barr-Pulliam

Dereck Barr-Pulliam

University of Louisville

Jennifer R. Joe

Virginia Tech - Department of Accounting and Information Systems; University of Delaware - Accounting & MIS

Stephani Mason

DePaul University - School of Accountancy and Management Information Systems (MIS)

Kerri Ann Sanderson

Bentley University

Date Written: October 30, 2020

Abstract

We analyze interviews with valuation specialists (specialists) employed by audit firms (in the Asia-Pacific region, Europe, and the U.S.) to understand how they work with auditors to evaluate the reasonableness of fair value measurements (FVMs) for financial instruments. The rapid growth of FVMs and complex estimates reported on financial statements requires that auditors increasingly rely on specialists to perform these evaluations. Informed by coopetition theory from management and organizational science, we develop a framework to examine the tensions in the auditor-specialist alliance (the coopetitive alliance) and how those tensions can impact FVM audit quality. Our framework considers five factors that contribute to tensions in the coopetitive alliance – organizational structure, economic independence and stressors, project goals, group identity, and knowledge sharing. We find that tensions around the economic independence of the specialist unit, auditor delays in engaging the specialist, and specialists’ perceptions that auditors do not respect their expertise and contribution to the FVM audit, lead specialists to distrust auditors and respond in ways that threaten audit quality. Further, we show that firm-level choices in the organizational structure and policy governing the use of specialists can impact the perceived quality of the specialist unit and the quality of audited FVMs. Our research complements recent studies examining the role of specialists in audit engagements with significant complex estimates and provides new insights to academics, regulators, and professionals.

Keywords: valuation specialists, fair value measurements, auditing, coo-petition

Suggested Citation

Barr-Pulliam, Dereck and Joe, Jennifer R. and Mason, Stephani and Sanderson, Kerri Ann, The Auditor-Valuation Specialist Coopetitive Alliance in the Fair Value Audit of Complex Financial Instruments (October 30, 2020). Available at SSRN: https://ssrn.com/abstract=3620440 or http://dx.doi.org/10.2139/ssrn.3620440

Dereck Barr-Pulliam (Contact Author)

University of Louisville ( email )

110 West Brandeis Avenue
Louisville, KY 40208
United States
502-852-4834 (Phone)

HOME PAGE: http://https://business.louisville.edu/faculty-research/faculty-directory/14229/

Jennifer R. Joe

Virginia Tech - Department of Accounting and Information Systems ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Stephani Mason

DePaul University - School of Accountancy and Management Information Systems (MIS) ( email )

Chicago, IL 60604
United States

Kerri Ann Sanderson

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

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