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The accelerated pace of change in the global economy and capital markets along with the complexity of transactions and financial reporting that involve applying fair value measurements (FVM) is a major third-party user concern. The 2008 financial crisis highlighted risks that investors are exposed to when making FVM-related capital allocations. Accounting estimates often involve subjective assumptions and measurement uncertainty, increasing potential management bias (Choudhary, 2011; Ramanna & Watts, 2012). FVMs are of critical importance to the reliability of the financial statements. Therefore, the purpose of this chapter is to inform educators of the possible need to evaluate their curriculum as to coverage of FVM topics. The support for this evaluation is based on our attempt to: (1) evaluate the extent of reported FVM-related deficiencies with reference to regulatory bodies’ findings of significant deficiencies in FVM; (2) examine the use of FVM specialists; (3) determine if colleges and universities are keeping pace with FVM demands; (4) list the Uniform CPA Examination Blueprint FVM testing areas; and (5) provide curricular FVM topic recommendations.

This study aims to examine whether banks are compliant with the Financial Accounting Standards Board’s standard Accounting Standards Update (ASU) 2010-06 requiring disaggregated fair value hierarchy information. It also identifies institutional and firm-specific factors that are associated with compliance or non-compliance.

Using quarterly reports of banks for the first quarters of 2009 (pre- ASU 2010-06) and 2010 (post- ASU 2010-06), we hand-collect information on disclosures about fair values from the footnotes. Using a logistic regression with compliance/non-compliance as the dependent variable, we examine factors associated with compliance/non-compliance.

Results show that 23 per cent of banks do not comply with ASU 2010-06 and that the non-compliant banks tend to be small, lack effective internal controls and are more likely to be audited by non-specialist auditors.

This study only considers one type of non-compliance with ASU 2010-06, i.e. whether or not firms provide disaggregated fair value hierarchy information. There may be other forms of non-compliance that the authors do not examine because of the difficulties involved in objectively defining non-compliance.

The findings suggest firms may need to increase training for internal personnel and hire high-quality auditors for ensuring compliance with fair value accounting rules. The authors also suggest that smaller firms may find compliance to be onerous and recommend additional research to examine whether smaller firms should be exempted from some or all of the fair value rules.

This study provides some of the first evidence on the level of compliance with mandated fair value disclosures.

This paper investigates the application of the product differentiation and shared efficiency approaches to understand the impact of the auditor industry specialisation (IS) on audit fees in relation to Fair Value Disclosures (FVD).

The study uses 1,470 firm-year observations for the period 2005–2018 and is focused on Jordanian financial firms. Two competing theoretical approaches of IS proxied by audit fee-based measures were employed: firstly, the product differentiation approach measured using Market Share-based (MS) measure and secondly, the shared efficiency approach measured using Portfolio Share-based (PS) measure. The paper employs the Ordinary Least Squares regression to test the association between the proportion of fair-valued assets (using fair value hierarchy inputs) and audit fees.

The results suggest that the association between the proportion of fair-valued assets and audit fees is strengthened (weakened) when the client hires specialist auditors identified by MS (PS). This association varied across the fair value inputs. Level 1 assets were found to be only moderated by both scenarios positively (negatively) for MS (PS) experts. The results are robust after controlling the endogeneity of auditor self-selection.

The results provide valuable insights for policymakers into challenges of auditing FVD. These insights present a valuable input for the development of FVD policies and practices as well as providing guidance for updating auditor prices. Additionally, the results provide a foundation for policymakers and regulators to introduce and update fair value auditing practices. The current findings are generalisable to other countries, including the Middle East and North Africa, and are particularly beneficial for those countries which have adopted the fair value model.

This study contributes to the theory by demonstrating the impact of the auditor industry expertise on post-implementation costs of FVD. The novelty of the study lies in introducing principle-based standards requirements of FVD to test the relationship. This approach is based on the IFRS disclosure requirements using data from the Jordanian financial sector to examine this relationship.

Following the issuance of International Financial Reporting Standard 13 on fair value measurement (which became operational from January 2013), this study aims to investigate post-implementation challenges in the audit of fair value measurement and accounting estimates in the Nigerian context.

Data-collection was through a structured-questionnaire administered on 400 auditors from diverse backgrounds in terms of audit firm size, international affiliation and global presence.

Empirical data obtained from 277 auditors were analysed using descriptive statistics, factor analysis, one-way ANOVA, cluster analysis, independent sample t-test and one-way multivariate analysis of co-variance. It was observed that the two highest-ranking and most-prevalent challenges of auditing fair value measurement and accounting estimates are the tendency for managers to manipulate earnings owing to the inability of auditor to effectively test fair value estimates; and the difficulty in testing unobservable inputs due to the application of assumptions and judgement in arriving at estimates by preparers of financial reports.

While there is no significant difference in the perception of auditors on the audit challenges associated with fair value measurement and accounting estimates, there is a significant difference in the magnitude of audit challenges faced in verifying fair value measurements and accounting estimates across industry sectors. Concerned stakeholders (including but not limited to accounting regulators, auditing standard setters, audit firms, researchers) are importuned to come up with robust and pragmatic measures to curtain these challenges, as the inability of auditors to rigorously verify fair value estimates may jeopardize the very essence of fair value measurement which is to elevate financial reporting quality.

This study examines (1) the extent of key audit matters (KAMs) reported by auditors is related to accounting estimates, (2) whether measurement uncertainty and management bias affect auditors to do so and (3) whether the use of accounting estimates, given the measurement uncertainty and management bias reported in KAMs adversely affects the decision usefulness of accounting information.

Data on key audit matters, accounting estimates, measurement uncertainty, management bias, etc. were collected from the auditor's reports of 351 sample Chinese listed firms. It employs regression analyses to assess the hypotheses on issues affecting the report of these key audit matters and the impacts on the decision usefulness of accounting information.

Fair value and impairment loss estimations make up of 2.6 and 44.1% of the 606 KAMs identified, respectively. Measurement uncertainty is positively, while management bias is negatively, affecting auditors report KAMs related to accounting estimates. The use of accounting estimates in firms where their auditors reported the KAMs related to accounting estimates does not enhance the value and predictive relevance of reported earnings. The assurance works on, and reporting of, KAMs served as a “red flag” about the accounting estimates.

The use of accounting estimates does not always lead to enhanced decision-useful accounting information. Auditors, in their stewardship role, shall ensure that the measurement uncertainty issue is appropriately identified, addressed and verified. In addition, they shall provide an effective check-and-balance to the accounting discretion managers have in providing decision-useful information from opportunistic reporting.

This study examines the proposition that while the use of estimates can enhance the decision usefulness of accounting information, it can also induce measurement uncertainty and management bias into financial reporting.

This study aims to examine the association between fair value accounting and the cost of corporate bonds, proxied by bond yield spread. In addition, this study explores the moderating role of auditor industry expertise at both the national and the city levels.

This study first examines the effect of the use of fair value on yield spread by estimating firm-level regression model, where fair value is the testing variable and yield spread is the dependent variable. To test the differential impact of the three levels of fair value inputs, this paper divides the fair value measures based on the three-level hierarchy, Level 1, Level 2 and Level 3, and replace them as the test variables in the regression model.

This study finds that the application of fair value accounting is generally associated with a higher bond yield spread, primarily driven by Level 3 estimates. The results also show that national-level auditor industry expertise is associated with lower bond yield spreads for Level 1 and Level 3 fair value inputs, whereas the impact of city-level auditor industry expertise on bondholders is mainly on Level 3 fair value inputs.

The paper innovates by exploring the impact of fair value accounting in a setting that extends beyond financial institutions, the traditional area of focus. Moreover, most prior research considers private debt, whereas this study examines public bonds, for which investors are more likely to rely on financial reporting for their information about a firm. Finally, the study differentiates between city- and national-level industry expertise in examining the role of auditors.

This research has several practical implications. First, firms seeking to raise debt capital should consider involving auditors, with either industry expertise or fair value expertise, due to the roles that auditors play in safeguarding the reliability of fair value measures, particularly for Level 3 measurements. Second, from standard-setting and regulatory perspectives, the study’s findings that fair value accounting is associated with higher bond yield spread cast further doubt on the net benefits of applying a full fair value accounting regime. Third, PCAOB may consider enhancing guidance to auditors on Level 2 fair value inputs, to further enhance audit quality. Finally, creditors can be more cautious in interpretating accounting information based on fair value while viewing the employment of auditor experts as a positive signal.

First, the paper extends research on the role of accounting information in public debt contracting. Second, this study adds to the auditing literature about the impact of industry expertise. Finally, and more generally, this study adds to the ongoing controversy on the application of fair value accounting.

This case study aims to investigate the role of actors in the implementation of fair value standards in an emerging country, Indonesia.

This study uses semi-structured interviews with important actors within the local accounting profession, standard setting and regulatory environment, to analyse fair value accounting implementation. This study also incorporates information from press releases and newspapers, to provide a more comprehensive picture of fair value implementation.

First, professionals undertake routine actions, cultivate interests and strategically navigate their environment during the process of fair value standard implementation. Second, the role of appraisers becomes more prominent during this process. Third, government involvement is significant in ensuring the successful implementation of global accounting standards.

First, differing localised contexts, including communities and actors, may shape how an emerging country undertakes the diffusion and implementation of global standards, which in turn can also lead to institutional change. Second, government involvement is crucial in supporting the implementation of global accounting standards within emerging economies. Third, implementing market-based measurements within emerging economies characterised by a lack of an active and liquid market may present challenges.

Third, implementing market-based measurements within emerging economies characterised by a lack of an active and liquid market may present challenges.

This study applies the concept of Institutional Work within Institutional Theory to explain how fair value standards are implemented within a localised emerging economy characterised by unique actor roles and goal-directed action.

This synthesis covers academic research on the use of valuation, tax, information technology (IT), and forensic specialists on audit engagements. The importance and role of specialists on audit engagements have recently increased, and specialist use has garnered significant attention from regulators and academics. Given the PCAOB’s (2017b) recent proposal to revise auditing standards regarding specialists’ involvement, it is important to review the specialist literature as a whole. By integrating research across these four domains, I identify commonalities and differences related to: (1) factors associated with the use of specialists on audit engagements (including the nature, timing, and extent of use); (2) factors impacting auditors’ interactions with specialists (including specialists contracted by the auditor or management); and (3) outcomes associated with the use of specialists. This integrated analysis of the specialist literatures shows variation in the use of specialists, and various factors affecting both if and how they are involved and whether auditors use specialists internal or external to the audit firm. Additionally, research has sometimes (but not always) linked specialist involvement to higher audit quality. The commonalities and areas of variation identified are informative to audit research and practice, particularly as regulators and audit firms look to improve the quality of audits using specialists. Throughout the synthesis, I also provide a number of directions for future research.

A striking feature of Jaques' work is his “no nonsense” attitude to the “manager‐subordinate” relationship. His blunt account of the origins of this relationship seems at first sight to place him in the legalistic “principles of management” camp rather than in the ranks of the subtler “people centred” schools. We shall see before long how misleading such first impressions can be, for Jaques is not making simplistic assumptions about the human psyche. But he certainly sees no point in agonising over the mechanism of association which brings organisations and work‐groups into being when the facts of life are perfectly straightforward and there is no need to be squeamish about them.

This paper aims to investigate the association between International Financial Reporting Standards (IFRS) effort due to higher levels of material adjustments and audit fees. In addition, this paper tests whether these associations differ between industry specialist auditors and non-specialist auditors.

The authors measure IFRS effort by using differences between local GAAP and IFRS. More specifically, they measure the differences in the balances of accounts that are prepared under IFRS as opposed to the previously used Australian Accounting Standards Board (AASB) standards. They posit that higher material adjustments and more risk to fair presentation of financial statements require additional accounting and auditing effort (“IFRS effort”).

The authors find that audit fees are higher when accounting standards are more material and complex at an aggregate level. Nevertheless, not all standards are equally complex and/or material and not all individual standards contribute to higher audit fees. In addition, the results show that the positive association between IFRS effort and audit fees is more pronounced when firms are audited by city-level industry specialists than by non-industry specialists.

Overall, the results are consistent with the prediction of increasing audit fees for firms requiring higher levels of IFRS effort compared to firms requiring lower levels of IFRS effort. The results contribute to the understanding that not all IFRS are equally complex and, thereby, the standards require different levels of auditor effort. Isolating specific standards based on materiality/risk levels is informative to standard setters for standard setting, standard implementation and post-implementation review of standards.