As banks reported somewhat disappointing annual results amidst the global financial crisis, little seems to have been pinned on issues directly related to their audits.

But the industry is in any case looking at how it audits fair value calculations.

The IAASB is issuing an alert on the issue. According to IAASB chairman John Kellas, the resolution to issue the warning came out of the group’s fair value task force, which reported back at the IAASB’s quarterly meeting a week ago.

Kellas said that the alert would refer to issues around fair value which include modelling, the imposition of assumptions in audit evidence and disclosures. Complex valuations are also among the priority areas.

‘This concerns the use of experts by auditors in looking at complex valuations. The auditors will have to question the need to draw on expertise of others. In some instances clients may also be using experts.

‘In these cases, the auditor might need to consider what instructions were given to the expert for the valuations, and whether the approach of the expert is consistent with the accounting framework,’ said Kellas

‘The kinds of assumptions, methods and models that they use are also likely to be questioned in terms of the requirements of the accounting framework.’

Auditors will also be expected to make judgments on the reliability of audit evidence, especially in cases where a value can no longer be ascertained in line with the market for an asset, because the market is no longer active.

The way in which auditors will assess fair value has also come under the scrutiny of the International Forum of Independent Audit Regulators, which noted it as an area under their attention in the course of inspection work.

With the international regulatory eye carefully watching their actions in the current period, auditors might find themselves being especially strict in their audits.

Some clients, particularly those in the banking sector, might prefer different rules.

However a recent assessment by market-players, facilitated by the International Accounting Standards Board has deemed that the rules will remain, pending a consultation on the valuation of assets whose markets have seized up.

While the rage about the unfairness of fair value continues, those who take issue with it will ultimately have to fall in line with the rules.