Does Fair Value Measurements Present Challenges to External Audits of Private Commercial Banks of Ethiopia?
No Thumbnail Available
Date
2023-06-07
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
Globally, countries and companies are adopting IFRSs in an increasing rate with the hope of
improving quality and credibility besides achieving a uniform set of standards for financial
reporting. In this line, Ethiopia adopted IFRSs officially in December, 2014 through enactment
of Proclamation No. 847/2014. The migration to IFRSs, among others, introduces the extensive
use of fair value reporting under IFRSs. Thus, it‘s proper to ask the implementation of IFRSs in
relation to Fair Value Measurements (FVMs). This research approaches the implementation of
IFRSs in Ethiopia in the banking sector from the perspectives of external auditors. Given that
there is little or no prior knowledge of the topic in the sector the research employed exploratory
descriptive design. This research provides an engagement level analysis focus on the external
audits of private commercial banks of Ethiopia with the emphasis of FVMs challenges, using
concurrent transformative strategy on auditing phases from environmental and task
characteristics of challenging FVMs to audit outcomes. Based on seven out of thirty (commonly
used) experienced external auditors of descriptive analysis; the challenges of auditing FVMs are
significant and/or complex assumptions, high degree of subjectivity, estimation uncertainty, lack
of efficient market and valuation process. Estimation Uncertainty, Level 3, Materiality, Profit-
After-Tax, and Client-Specialist are positively associated with risk assessments which are, in
turn, predictive of client problems identified during the engagement. Specifically, unobserved
inputs have a significant effect on banks‘ model and assumptions. The auditor-client discussions
are also related to the risk assessments, but not to the breadth of problems identified and
reasonable ranges of value estimation. Unfortunately, the proposed audit adjustment is
infrequent; in sum, the key challenging FVMs is the evidence related to the level of fair value
hierarchy and/or factors made difficult and/or complex for auditing specific fair value measurement.
Description
Keywords
Fair Value Measurements, Audits, Challenging