Mark Zyla, managing director of Atlanta-based valuation and litigation consultancy firm, Acuitas, Inc., released the firm's "2017 Survey of Fair Value Audit Deficiencies," its sixth annual analysis of recent Public Company Accounting Oversight Board inspections. Acuitas' survey is intended to assist financial statement preparers, auditors and valuation specialists in understanding the root causes of fair value measurement and impairment audit deficiencies. There are several key findings and trends noted by the analysis of the 2009 to 2016 inspection reports and from PCAOB Inspection Briefs:

• The percentage of audit deficiencies has dropped since its dramatic peak in 2013 – but remains quite high at 31.6 percent of audits and other engagements examined.

• FVM audit deficiencies are increasingly attributable to a surge in business combination engagements. Fair value deficiencies cited related to business combinations increased to 68 percent in 2015, up from 56 percent in 2014. The PCAOB considers the robust pace of merger and acquisition activity to be an economic risk escalating the prospect of material misstatements.

• Based on our analysis, failures to assess audit risks as well as test internal controls and assumptions underlying prospective financial information are the root causes of most FVM and impairment audit deficiencies. The PCAOB links improvements to factors such as heightened responsiveness from management and the increased use of quality control aids.  

• The June 2017 release of proposed auditing standard Auditing Accounting Estimates, Including Fair Value Measurements reinforces the PCAOB's commitment to seeing improvements in these areas.

"It's apparent that the number of audit deficiencies remains high, owing to a surge in deal-making activity," Zyla said. "But we are seeing industry and accounting firm leaders committing to more quality control measures and ensuring due professional care, hence the decline."