The rising prominence of fair values and other estimates (FVOEs) to financial reporting increases their significance to the audit. Based on inspections that report numerous deficiencies, the PCAOB is concerned that auditors are not sufficiently prepared for the challenges faced in evaluating...

One objection to fair value accounting for liabilities is that changes in a company’s credit risk are recognized as gains or losses in a manner that is counterintuitive to the way gains and losses are typically interpreted (Lipe 2002). Specifically, when a company’s credit risk increases...

Fair values and other accounting estimates (FVOEs) are common in financial reporting (IAASB, 2009) and regulators are concerned that auditors are insufficiently skeptical in their evaluations of FVOEs (PCAOB, 2009, 2015a, b; IFIAR, 2014). Utilizing an experiment with auditors as participants, we...