Over 40 percent of all audits inspected by the Public Accounting Oversight Board in 2012 had deficiencies, and the number of fair value measurement audit deficiencies made up approximately one-fourth of all audit deficiencies, according to a new report.
The third annual “Survey of Fair Value Audit Deficiencies” by the Atlanta-based valuation and litigation consultancy firm Acuitas analyzed the PCAOB's 2012 audit firm inspection reports and found that while the trend in fair value measurement deficiencies continues to decline from its peak in 2010, the incidence of FVM deficiencies is still significant. Of the 80 available inspection reports from 2008 to 2012 for the top 25 audit firms, 63.7 percent had FVM and impairment audit deficiencies
“The recent decrease in FVM audit deficiencies relating to the pricing of financial instruments is likely the result of audit firms’ responses to PCAOB inspection reporters, auditors having more experience dealing with FVM audit issues, and an improvement in economic conditions,” said Acuitas managing director Mark Zyla in a statement. “As economic recovery has increased, the pace of merger and acquisition activity, and the number of deficiencies noted by the PCAOB relating to business combinations, has increased. The current survey indicated that auditors should focus on assessing risk and test internal controls relating to fair value measurements in business combinations and testing goodwill and other intangible assets for impairment.”
However, Acuitas noted that two new trends have emerged. Business combinations were the source of 9 percent of FVM deficiencies in prior years, and increased to 45 percent in 2012. In addition, a significant increase of FVM deficiencies and impairment deficiencies were caused by failures to assess risk and failure to identify or test internal controls.
