The international standard of financial reporting and the risk of non-detection of the audit, part two
The international standard of financial reporting and the risk of non-detection of the audit part two:
Non-discovery of the second part of the audit, we want to discuss in several parts
2- Measurement based on fair values
From the basic point of view of international financial reporting standards, the emphasis is on fair values.
These standards intend to replace the use of fair values with the historical cost basis.
International Accounting Standards No. 16 (IAS 16)
It allows the use of fair values for property, machinery and equipment.
According to this standard, revaluation of assets to fair values is required.
International Accounting Standards No. 38 (IAS 38)
requires revaluation of intangible assets to fair values.
International Accounting Standards No. (IAS 39)
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Requires the use of fair values for investments other than loans, accounts receivable, held-to-maturity securities, and certain items.
In International Standards No. 3 (IFRS 3)
Under the heading, “Business Combinations”, it allows the recognition of contingent assets at fair values when they are reasonably and reasonably estimable.
An employee of the Financial Accounting Standards Board named Johnson (2005) states that the said board has adopted the extensive use of fair values.
Because he believes that the information prepared based on it is more relevant for investors and creditors than historical cost information.
Such a measure not only better reflects the current financial situation of the reporting entity.
Rather, it facilitates the evaluation of its past performance and future prospects.
The findings of Gassen and Shoder (2010) show that the fair values obtained based on active market information are useful in decision-making, but when they are not useful in decision-making, they are estimated based on alternative mathematical models.
From the perspective of financial reporting, the issue of measuring and disclosing fair value information is very important.
Auditors need to understand accounting rules and procedures related to fair values, including information disclosure, and express appropriate considerations regarding their application.
Recent experiences show crises and problems in financial markets.
which results from evaluating financial instruments based on fair values when market information is not available or it is difficult to obtain sufficient information.
The following issues are important to preparers and auditors regarding accounting estimates based on fair values:
Accounting estimates of fair value are stated in terms of the current transaction value or the existing conditions of an item in the financial statements on the measurement date.
The need to unify judgments about significant assumptions that may be made by others such as experts employed by the company or auditors.
Availability of fair value information and reliability of that information.
_ Selection and appropriateness of fair value estimation models and techniques
– The need for appropriate disclosure of information in financial statements about measurement models and uncertainties, especially when there are no active markets (Audit and Assurance Standards Board, 2008)
In the current situation, obtaining relevant and reliable information about fair values is one of the most important challenges faced by financial information providers and, accordingly, auditors.
The nature and reliability of the information available to management to support the accounting estimates made.
Based on fair values, it varies greatly, which affects the degree of uncertainty of estimates based on fair values.
Market prices will not be available when there are no active markets.
Therefore, estimates should be based on other information.
Like using models, some of the inputs of these models are invisible.
Therefore, the degree of uncertainty has increased and affects the risk of significant distortion of financial information by the employer.