Fair Value Estimates

Question 1

the best audit evidence of fair value is

Answer 1

published price quotations in an open market

Question 2

observable inputs

Answer 2

assumptions that market participants would use in pricing an asset or liability based on market data from sources independent of the reporting entity

Question 3

unobservable inputs

Answer 3

the entity’s own judgements about what assumptions market participants would use

Question 4

evaluating the use of models

matters the auditor may consider in testing

Answer 4

wether the model is validated prior to usage

wether there are controls over changes

wether the models validity is periodically tested (especially when inputs are subjective)

wether adjustments are made to models outputs

wether the model is adequately documented, including key parameters and limitations

Question 5

assumptions used by management

Answer 5

wether the assumptions are reasonable, individually or in the aggregate

wether the assumptions are interdependent and internally consistent

wether the assumptions reflect observable market conditions

existence of significant assumptions may suggest high estimation uncertainty