Statements of Position



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In recent years, generally accepted accounting principles (GAAP) have required entities to significantly increase the use of fair value for measuring, presenting, and disclosing in their financial statements assets, liabilities, and specific components of equity. The business environment and GAAP that apply to the transactions and events in that environment have become more complex. Along with that complexity and the increased use of fair value measurements and disclosures comes an increasing acknowledgment of the importance of fair values in the financial reporting process. The ASB believes that a Statement on Auditing Standards (SAS) providing overall guidance on auditing considerations relating to fair value is needed to address the current and expected needs of practitioners. The proposed SAS, entitled Auditing Fair Value Measurements and Disclosures, establishes general guidance that provides a framework within which the auditor can exercise professional judgment in auditing fair value measurements and disclosures. The proposed SAS does not address specific types of assets or liabilities, transactions, or industry-specific practices. SAS No. 92, Auditing Derivative Instruments, Hedging Activities, and Investments in Securities (AICPA, Professional Standards, vol. 1, AU sec. 332), is an example of such specific auditing guidance. The proposed SAS requires the auditor to: 1. Obtain sufficient competent audit evidence to provide reasonable assurance that fair value measurements and disclosures are in conformity with GAAP. 2. Obtain an understanding of the entity's process for determining fair value measurements and disclosures and of the relevant controls sufficient to develop an effective audit approach. 3. Evaluate whether the fair value measurements and disclosures in the financial statements are in conformity with GAAP. 4. Evaluate management's intent and ability to carry out specific courses of action where relevant to the fair value measurements and disclosures. 5. Evaluate whether the entity's method of measurement is appropriate (this requirement applies where alternative methods for measuring fair value are available under GAAP, or where the method of measurement is not prescribed). 6. Evaluate whether the entity's fair value measurements are applied consistently. 7. Consider whether to use the work of a specialist. 8. Test the entity's fair value measurements and disclosures (based on the assessment of the risk of material misstatement). 9. Determine that the audit committee is informed about the process used by management in formulating particularly sensitive accounting estimates, including fair value estimates, and about the basis for the auditor's conclusions regarding the reasonableness of those estimates. The exposure draft would result in a new SAS that provides guidance to auditors when auditing fair value measurements and disclosures. It does not amend or supersede any existing SASs.



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Fair value -- Accounting -- Standards -- United States; Disclosure in accounting; Financial statements -- Standards -- United States


Accounting | Taxation


Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants; Exposure draft (American Institute of Certified Public Accountants), 2002, June 28

Proposed statement on auditing standards : Auditing fair value measurements and disclosures;Auditing fair value measurements and disclosuses



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