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ExpandAS No. 1: References in Auditors’ Reports to the Standards of the Public Company Accounting Oversight Board
ExpandAS No. 3: Audit Documentation
ExpandAS No. 4: Reporting on Whether a Previously Reported Material Weakness Continues to Exist
ExpandAS No. 5: An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements
ExpandAS No. 6: Evaluating Consistency of Financial Statements
ExpandAS No. 7: Engagement Quality Review
ExpandAS No. 8: Audit Risk
ExpandAS No. 9: Audit Planning
ExpandAS No. 10: Supervision of the Audit Engagement
ExpandAS No. 11: Consideration of Materiality in Planning and Performing an Audit
ExpandAS No. 12: Identifying and Assessing Risks of Material Misstatement
ExpandAS No. 13: The Auditor's Responses to the Risks of Material Misstatement
ExpandAS No. 14: Evaluating Audit Results
ExpandAS No. 15: Audit Evidence
ExpandAS No. 16: Communications with Audit Committees
ExpandAU Section 100 - Statements on Auditing Standards -- Introduction
ExpandAU Section 200 - The General Standards
CollapseAU Section 300 - The Standards of Field Work
AU Section 315 - Communications Between Predecessor and Successor Auditors
AU Section 316 - Consideration of Fraud in a Financial Statement Audit
AU Section 317 - Illegal Acts by Clients
AU Section 9317 - Illegal Acts by Clients: Auditing Interpretations of Section 317
AU Section 322 - The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements
AU Section 324 - Service Organizations
AU Section 9324 - Service Organizations: Auditing Interpretations of Section 324
AU Section 325 - Communications About Control Deficiencies in an Audit of Financial Statements
AU Section 9325 - Communication of Internal Control Related Matters Noted in an Audit: Auditing Interpretations of Section 325
AU Section 9326 - Evidential Matter: Auditing Interpretations of Section 326
AU Section 328 - Auditing Fair Value Measurements and Disclosures
AU Section 329 - Substantive Analytical Procedures
AU Section 330 - The Confirmation Process
AU Section 331 - Inventories
AU Section 332 - Auditing Derivative Instruments, Hedging Activities, and Investments in Securities
AU Section 333 - Management Representations
AU Section 9333 - Management Representations: Auditing Interpretations of Section 333
AU Section 334 - Related Parties
AU Section 9334 - Related Parties: Auditing Interpretations of Section 334
AU Section 336 - Using the Work of a Specialist
AU Section 9336 - Using the Work of a Specialist: Auditing Interpretations of Section 336
AU Section 337 - Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments
AU Section 9337 - Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments: Auditing Interpretations of Section 337
AU Section 341 - The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern
AU Section 9341 - The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern: Auditing Interpretations of Section 341
AU Section 342 - Auditing Accounting Estimates
AU Section 9342 - Auditing Accounting Estimates: Auditing Interpretations of Section 342
AU Section 350 - Audit Sampling
AU Section 390 - Consideration of Omitted Procedures After the Report Date
ExpandAU Section 400 - The First, Second, and Third Standards of Reporting
ExpandAU Section 500 - The Fourth Standard of Reporting
ExpandAU Section 600 - Other Types of Reports
ExpandAU Section 700 - Special Topics
ExpandAU Section 800 - Compliance Auditing
ExpandAU Section 900 - Special Reports of the Committee on Auditing Procedures

AU Section 9342

Auditing Accounting Estimates: Auditing Interpretations of Section 342

1.    Performance and Reporting Guidance Related to Fair Value Disclosures

.01

Question—In December 1991, the Financial Accounting Standards Board (FASB) issued Statement No. 107, Disclosures about Fair Value of Financial Instruments [AC section F25], which requires all entities to disclose the fair value of certain financial instruments for which it is practicable to estimate fair value. Some entities may disclose the information required by FASB Statement No. 107 and also disclose voluntarily the fair value of assets and liabilities not encompassed by FASB Statement No. 107. What are the auditor's responsibilities in situations in which entities are disclosing required or both required and voluntary fair value financial information?

.02

[The following paragraph is effective for audits of fiscal years beginning on or after December 15, 2010. See PCAOB Release No. 2010-004. For audits of fiscal years beginning before December 15, 2010, click here.]

Interpretation—The auditor should determine whether the fair value disclosures represent only those required by FASB Statement No. 107 or whether additional voluntary fair value information has been disclosed by the entity. When auditing management's estimate of both required and voluntary fair value information, the auditor should obtain sufficient appropriate evidential matter to reasonably assure that—

  • the valuation principles are acceptable, are being consistently applied, and are supported by the underlying documentation, and
  • the method of estimation and significant assumptions used are properly disclosed.

If such assurance cannot be obtained, the auditor should evaluate whether the financial statements are materially affected by the departure from generally accepted accounting principles.

.03

Required Information Presented—When an entity discloses in its basic financial statements only information required by FASB Statement No. 107, the auditor may issue a standard unqualified opinion (assuming no other report modifications are necessary). The auditor may add an emphasis-of-matter paragraph describing the nature and possible range of such fair value information especially when management's best estimate of value is used in the absence of quoted market values (FASB Statement No. 107, paragraph 11 [AC section F25.115D]) and the range of possible values is significant. If the entity has not disclosed required fair value information, the auditor should evaluate whether the financial statements are materially affected by the departure from generally accepted accounting principles.

.04

Required and Voluntary Information Presented—When voluntary information is presented in addition to required information the auditor may audit the voluntary information only if both the following conditions exist:

  • the measurement and disclosure criteria used to prepare the fair value financial information are reasonable
  • competent persons using the measurement and disclosure criteria would ordinarily obtain materially similar measurements or disclosures.

In applying this guidance to fair value disclosures, the intention is that another auditor would reach similar conclusions regarding the reasonableness of the valuation or estimation techniques and methods used by the entity.

.05

Voluntary disclosures may supplement required disclosures in such a fashion as to constitute either a complete balance sheet (the fair value of all material items in the balance sheet) or a presentation of less than a complete balance sheet.

.06

When the audited disclosures constitute a complete balance sheet presentation, the auditor should add a paragraph to the report, similar to the following:

    We have also audited in accordance with auditing standards generally accepted in the United States of America the supplemental fair value balance sheet of ABC Company as of December 31, 20XX. As described in Note X, the supplemental fair value balance sheet has been prepared by management to present relevant financial information that is not provided by the historical-cost balance sheets and is not intended to be a presentation in conformity with generally accepted accounting principles. In addition, the supplemental fair value balance sheet does not purport to present the net realizable, liquidation, or market value of ABC Company as a whole. Furthermore, amounts ultimately realized by ABC Company from the disposal of assets may vary significantly from the fair values presented. In our opinion, the supplemental fair value balance sheet referred to above presents fairly, in all material respects, the information set forth therein as described in Note X.

.07

When the audited disclosures do not constitute a complete balance sheet presentation and are located on the face of the financial statements or in the footnotes, the auditor may issue a standard unqualified opinion and need not mention the disclosures in the report. When the audited disclosures do not constitute a complete balance sheet presentation and are included in a supplemental schedule or exhibit, the auditor should add an additional paragraph to the report as discussed in section 551, Reporting on Information Accompanying the Basic Financial Statements in the Auditor-Submitted Documents, paragraph .12.

.08

In some situations, the auditor may not be engaged to audit the voluntary information or may be unable to audit it because it does not meet both conditions in paragraph .04 of this interpretation. When the unaudited voluntary disclosures are included in an auditor-submitted document and located on the face of the financial statements, the footnotes, or in a supplemental schedule to the basic financial statements, the voluntary disclosures should be labelled "unaudited" and the auditor should disclaim an opinion on the unaudited information as discussed in section 551.13.

.09

When the unaudited voluntary disclosures are included in a client-prepared document and are located on the face of the financial statements, the footnotes, or in a supplemental schedule, the voluntary disclosures should be labelled "unaudited." When such unaudited information is not presented on the face of the financial statements, the footnotes, or in a supplemental schedule, the auditor should consider the guidance in section 550, Other Information in Documents Containing Audited Financial Statements.

.10

The auditing guidance related to each of these alternatives is presented in the following flowcharts:

AUDITING GUIDANCE FOR FAIR VALUE INFORMATION
Required
fn * Information Only

Auditing Guidance for Fair Value Information Required Information Only

AUDITING GUIDANCE FOR FAIR VALUE INFORMATION
Required and Voluntary Information

 Auditing Guidance for Fair Value Information Required and Voluntary Information

[Issue Date: February, 1993; Revised: October, 2000.]

Footnotes (AU Section 9342 — Auditing Accounting Estimates: Auditing Interpretations of Section 342):

fn * *    Required by Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures about Fair Value of Financial Instruments.

Copyright © 2001, American Institute of Certified Public Accountants, Inc.