A new analysis of inspection findings from the Public Company Accounting Oversight Board indicates that the percentage of audits with deficiencies has more than doubled since 2009, largely due to problems with fair value measurement and asset impairment.
The Survey of Fair Value Audit Deficiencies was released Wednesday by Acuitas, Inc., an Atlanta CPA firm that practices litigation and business valuation services. The analysis found that fair value measurement and impairment deficiencies accounted for 52 percent of all the audit deficiencies cited in the PCAOB’s 2010 inspection reports. The number of cited deficiencies has more than tripled since 2009.
Fifty-two percent of audit deficiencies related to fair value measurement were the result of inadequate testing of asset prices provided by outside pricing services. In addition, 63.6 percent of impairment-related audit deficiencies related to the testing of management’s prospective financial information.
“The information contained in the survey should benefit public entities and their auditors, and by extension, private entities and their auditors—by helping them understand the underlying causes of fair value measurements and impairment audit deficiencies, as reported by the PCAOB in their latest inspection reports,” Acuitas managing director Mark Zyla said in a statement.
The report acknowledged that the increase in audit deficiencies related to fair value measurement and impairment is most likely the result of uncertainty stemming from the economic downturn.
“Auditing the estimates and assumptions underlying FVM and impairments requires heightened professional skepticism as these judgmental areas are susceptible to management bias, particularly in difficult economic times,” the report noted.
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