Insights from Company Experts in Valuing Complex Estimates: The Other Side of the Story!

57 Pages Posted: 9 Feb 2021

See all articles by Kyrre Kjellevold

Kyrre Kjellevold

Norwegian School of Economics (NHH), Department of Accounting, Auditing and Law

Aasmund Eilifsen

Norwegian School of Economics (NHH) - Department of Accounting, Auditing, and Law

William F. Messier, Jr.

NHH Norwegian School of Economics

Date Written: December 29, 2020

Abstract

Management frequently uses company experts to provide fair value measurements (FVMs) of complex estimates. We conduct detailed interviews with Norwegian company experts who possess expertise in financial instruments, investment property, oil & gas, and shipping; and audit partners to investigate issues derived from agency theory and the monitoring activities of company experts. Our results show the company experts’ side of the story. First, company experts have incentives to build and maintain their reputation, are aware of the impact of conflicts-of-interest on reputation, and that reputation plays a role in their reappointment. Second, company experts face management pressure and several influence tactics are documented. Third, management strategically uses multiple company experts for FVMs. Fourth, some types of company experts strategically guard their valuation models and proprietary information. Fifth, the company experts confirmed that auditors focus on individual assumptions and fail to see the “big picture.” Finally, the company experts report limited interaction with the audit team. These findings support our theoretical framework and inform researchers, regulators, and practitioners about the role company experts play in the fair value estimate process.

Keywords: fair value measurements, auditors, company experts, management pressure

JEL Classification: G10, M41, M42

Suggested Citation

Kjellevold, Kyrre and Eilifsen, Aasmund and Messier Jr, William F., Insights from Company Experts in Valuing Complex Estimates: The Other Side of the Story! (December 29, 2020). Available at SSRN: https://ssrn.com/abstract=3756967 or http://dx.doi.org/10.2139/ssrn.3756967

Kyrre Kjellevold

Norwegian School of Economics (NHH), Department of Accounting, Auditing and Law ( email )

Norway
+4741242602 (Phone)

Aasmund Eilifsen

Norwegian School of Economics (NHH) - Department of Accounting, Auditing, and Law ( email )

Helleveien 30
N-5045 Bergen
Norway
+47 55 95 93 23 (Phone)
+47 55 95 93 20 (Fax)

William F. Messier Jr (Contact Author)

NHH Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
678-386-8634 (Phone)

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