Novice Auditors and Audits of Fair Values: Knowledge and Skill Requirements*

Abstract

Novice auditors are increasingly being asked to perform tasks that were not expected of them in the past, including evaluation of fair values (FVs). This study contributes to the auditing literature by investigating novice auditors' competencies required for correct performance of FV auditing tasks, identifying weaknesses, and suggesting actions that could be taken by educators and practitioners to address those weaknesses. Using the audit of goodwill impairment under IFRS as the exemplar task for identifying FV auditing competencies, we create a normative process table for the task based on accounting and auditing standards and authoritative valuation literature. We analyze the verbal protocols of novice auditors while they perform the task and compare their processes to the normative table to understand weaknesses in their competencies. Our findings are of interest to auditing educators and audit firm personnel responsible for staff training programs, audit program development (e.g., checklists), supervision, and review.