I had to read this article entitled PCAOB: Can Auditors Handle Fair Value? from CFO.com several times before the penny dropped. The opening paragraph claims (my emphasis added):
As companies begin to expand their use of fair value accounting, their auditors may not be fully ready to evaluate that work. The Public Company Accounting Oversight Board is concerned that fair value accounting could put reliable auditing of financial reporting at risk, says PCAOB chairman Mark Olson.
- The US GAAP system is rules driven – which means that nothing outside those rules is considered. Yet according to this article, the ‘rules’ are increasingly becoming muddied through the application of different valuation methods. IMO it is this ‘flexibility’ that has been the principle reason why unscrupulous officers have been able to manipulate the reporting system.
- The Big four claim global coverage – which means they should be capable of deploying a seasoned perspective given the UK profession has been immersed in principles based (i.e. value judgment) accounting for many years. I pick on the Big Four as they dominate global audit practice.
What is so hard here? If values are applied that differ from historic cost they likely be reflected in revaluation reserves or deficits. Anyone with half an accounting brain knows the values ascribed to fixed assets in published accounts are artificial at best by virtue of the depreciation rules. Open market value resolves that issue. There are plenty of well qualified persons able to provide acceptable market value estimates. If these are considered suspect then given current reporting requirements are we assuming that users of accounts are too thick to see through the fog of revaluation? Is PCAOB suggesting that valuers are charlatans or that auditors are idiots? Ot both?
Technorati Tags: audit
