The Impact of New Accounting Standards for Leases and Revenue Recognition on the Real Estate Strategy of Listed Hotel Firms

Jong, Chris de

The Impact of New Accounting Standards for Leases and Revenue Recognition on the Real Estate Strategy of Listed Hotel Firms

Files

MTHEC_RU_Chris_de_Jong_s4168534.pdf (588.62 KB)

Authors

Jong, Chris de

Issue Date

2017-08-22

Language

en

Abstract

The increasing presence of fair value measurements (FVMs) in accounting has had implications for the role of the auditor. According to literature, there are numerous direct and indirect factors that complicate the audit of FVMs. Bratten et al. (2013) classify these so-called ‘audit deficiencies’ into a framework, distinguishing environmental, task-specific and auditor-specific deficiencies. Despite insights of multiple academic studies and regulators’ attempts to improve audit performance, deficiencies continue to persist. A better understanding of the audit process of FVMs and the related deficiencies is needed and insights from the perspective of the auditor contribute to this purpose. By drawing upon the framework of Bratten et al. (2013), this research investigates how auditors perceive deficiencies in the audit of fair value measurements. A case study at a ‘Big Four’ accounting firm is performed, involving the examination of written audit procedures and interviews with auditors that are experienced in auditing FVMs. Results show that auditors perceive the audit of FVMs as complex, mainly due to the subjectivity and uncertainty inherent to management’s assumptions and the fair value model. Moreover, the auditor’s knowledge and expertise may not be sufficient to audit FVMs, making him dependent on the assistance of an internal valuation specialist.