How Do Auditors Use Valuation Specialists when Auditing Fair Values?

• In Event: Auditors Use of Specialists

Abstract

The purpose of this study is to understand how auditors use valuation specialists in auditing fair values and how their involvement affects audit quality. I interviewed 28 auditors with extensive experience using valuation specialists and analyzed the interviews from the perspective of Giddens’ (1990, 1991) theory of trust in expert systems. I find that auditors adapt existing guidance from auditing standards for the use of external specialists to guide their use of internal valuation specialists. In the absence of relevant guidance in this area, I also identify a tendency among auditors to make specialists’ work conform to the audit team’s prevailing view during the review process. Problems arise from the division of labor between auditors and valuation specialists and from the inherent uncertainty and subjectivity in fair values because auditors, though ultimately responsible for audit judgments, must rely on work done by valuation specialists that they cannot understand or review in the way they review other audit work papers. Overall, the interviews convey tension in auditors’ traditional role as experts in auditing and their new concurrent role as dependent on experts in valuation. Though counter-intuitive, it is increasingly necessary for auditors to rely on other experts in order to maintain their traditional expert role. The resulting study creates a framework for future research addressing problems related to auditors’ use of valuation specialists, an area in which problems have already been identified by the PCAOB and prior research (PCAOB 2010a; Martin et al. 2006; Griffith et al. 2013).

Author

• Emily Elaine Griffith, The University of Georgia