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    The Audit of Fair Values and Other Estimates: The Effects of...
    research summary posted November 10, 2014 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.09 Impact of Consultation on Judgments, 09.11 Auditor judgment in the workpaper review process 
    The Audit of Fair Values and Other Estimates: The Effects of Underlying Environmental, Task, and Auditor-Specific Factors
    Practical Implications:

    The paper gives practitioners, policy makers, and researchers a framework for considering audit of FVOEs. In considering environmental, task, and auditor-specific factors that individually and interactively affect auditors’ judgments, one may better analyze observed practice deficiencies and contribute to practitioners’ and regulators’ understanding of their likely causes and potential remedies.

    The framework is also valuable in identifying and evaluating the merit of future research topics. Central to the goal of developing research that will improve audits of FVOEs is the deliberate consideration of important interactions among the environmental, task, and person-specific factors involved in the development and audit of FVOEs. Identifying the important interactions among these factors allows researchers to better design studies that evaluate ways to improve the quality of audited FVOEs. Conducting practice-relevant research within the three-factor framework will help researchers, practitioners, and regulators better communicate their perspectives on issues surrounding audits of FVOEs.

    For more information on this study, please contact Gregory E. Sierra.


    Bratten, B., L. M. Gaynor, L. McDaniel, N. R. Montague & G. E. Sierra. 2013. The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice and Theory 32(Supplement 1): 7-44.

    fair value, estimates, audit judgment, audit deficiencies.
    Purpose of the Study:

    Based on inspections that report numerous deficiencies, the PCAOB has been concerned that auditors are not sufficiently prepared for the challenges faced in evaluating fair value and other estimates (FVOEs). The authors’ purpose is to organize the discussion on the sources of audit deficiencies related to FVOEs. First, the authors use the theoretical framework established by Bonner (2008)[1] to organize the challenges of auditing FVOEs in practice. The framework examines auditor judgment through an analysis of three critical and interactive factors of the judgment process—the environment, the task, and the person. Second, with consideration of the PCAOB-identified practice areas with direct implications for the audits of FVOEs, the authors develop and present future research lines of inquiry. The research lines of inquiry take into account the important interactions among the three framework factors, as they believe empirical evidence within these lines will help identify potential sources of, and remedies for, observed audit deficiencies.


    [1] Bonner, S. E. 2008. Judgment and Decision Making in Accounting. Upper Saddle River, NJ: Pearson Prentice Hall.

    Design/Method/ Approach:

    The authors analyze the possible sources for observed practice deficiencies by evaluating extant archival and experimental research and organize the discussion of FVOE audit around the Bonner (2008) three-factor judgment framework, which includes the environment, the task, and the person. The authors place the research in the context of the three factors (environment, task, and person) and their interactions. No data is tested. However, the authors do note that 42 percent of the deficiencies in the PCAOB’s August and September 2011 inspection reports are related to FVOEs.


    Regulators have attributed auditor characteristics, such as lack of valuation knowledge and lack of professional skepticism, to observed audit deficiencies. However, the authors’ evaluation of the literature within the three-factor framework demonstrates that not only are environmental uncertainties important but complexities in the task of auditing FVOEs are also important to consider in understanding auditor judgment. In short, whether auditor characteristics are the fundamental driver of audit deficiencies related to FVOEs is unclear. The authors also identify gaps in the research literature on audit of FVOEs and use the three-factor framework to organize research lines of inquiry. Given the paucity of research specifically targeted toward the audits of FVOEs, the authors identify 11 specific, empirical research lines of inquiry focused on  understanding the possible underlying sources of PCAOB-observed audit deficiencies. These suggestions for future research address unanswered questions that would benefit practice.  

    Auditor Judgment
    Impact of Consultation on Judgments, Prior Dispositions/Biases/Auditor state of mind