On the audit of fair value measurements

In this article, the hypotheses on whether the auditor's functional domain, approach, methodology and responsibilities are undergoing a metamorphosis with the adoption of Fair Value Accounting (FVA) and whether his/her role is moving away from the mechanized attester of tangible evidence to the one exercising a substantively judgmental function in a holistic assessment of the values ascribed to be fair by the entity's management are tested. These hypotheses are tested on the basis of an analysis of the statutory provisions, the pronouncements of accounting and other regulatory bodies and accounting norms and theories. After setting forth the research objectives and the hypotheses, the necessity of the FVA is reviewed and the underlying philosophy is analyzed. Impediments in performing audits of fair-value-based measurements are then identified and the US auditing standards and their international counterparts are touched upon. Finally, some safeguards and precautions for the auditor in an audit of fair-value measurements are presented.