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Fair Value Measurement: Practical Guidance and Implementation, 2nd Edition by Mark L. Zyla

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APPENDIX THIRTEEN C

Survey of Fair Value Audit Deficiencies1

Public Company Accounting Oversight Board (PCAOB) inspections have noted a dramatic increase in the number of fair value measurement (FVM) audit deficiencies relating to impairment testing and the measurement of certain assets, particularly the pricing of financial instruments. The chapter is intended to assist financial statement preparers, auditors, and valuation specialists in understanding the underlying causes of FVM and impairment audit deficiencies, as reported by the PCAOB in their latest inspection reports. The information contained in the study should benefit public entities and their auditors, and by extension, private entities and their auditors.

In a year-over-year comparison of firms subject to annual inspection, 2010 PCAOB inspections indicate two significant trends. (1) The percentage of overall audits with deficiencies has more than doubled in 2010, compared to 2009. (2) FVM and impairment audit deficiencies have contributed significantly to this increase. FVM and impairment deficiencies accounted for 52 percent of all audit deficiencies cited in 2010 PCAOB inspection reports, and the number of these deficiencies cited has increased by more than three times since 2009.

The survey also examines the underlying causes of FVM and impairment audit deficiencies. Recent PCAOB reports indicate that most FVM related audit deficiencies (52.0 percent) resulted from inadequate testing of asset prices provided by ...

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