Management applies accounting standards in the preparation of financial statements, and auditors assess the fair application of those accounting standards. The current trend is to use fair value for certain assets and liabilities.
Required
Discuss the implications for auditors of these accounting standards and the associated questioning of the use of fair values in financial accounting. In particular, you should address the following issues in your answer:
•How do auditors audit fair values?
•Would it be easier for auditors if financial statements contained more or less fair value accounting?
•Are there different implications for auditors when fair values are rising versus when they are falling?