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| Bangladesh Standard on Audit(BSA-545) |
What is the Bangladesh standard on Audit-BSA-545? Describes in details:
Bangladesh Standard on Auditing (BSA) 545, titled "Auditing Fair Value Measurements and Disclosures", provides guidelines for auditors on how to audit fair value measurements and related disclosures in the financial statements.
Here are the key points of BSA 545:
01Objective:
The primary objective of BSA 545 is to ensure that auditors obtain sufficient appropriate audit evidence to support fair value measurements and disclosures in the financial statements. The standard focuses on the challenges involved in auditing fair value, especially when market prices are not readily available or observable.
2. Fair Value Measurements:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is often used for financial instruments, property, plant, and equipment, and intangible assets.
3. Auditor’s Responsibilities:
Understanding the Measurement Process: Auditors need to understand how management determines fair value, including the methods, assumptions, and data sources used in the measurement.
4.Evaluating the Fair Value Model:
The auditor should assess whether the valuation model used by management is appropriate, reliable, and consistent with the applicable financial reporting framework.
5.Testing Assumptions:
Auditors should evaluate the reasonableness of the key assumptions, such as market conditions, interest rates, or other relevant data points used in determining fair value.
6.Level of Inputs for Fair Value:
Fair value measurements often involve different levels of inputs:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than quoted prices, such as market prices for similar assets or liabilities.
Level 3: Unobservable inputs based on assumptions made by management, often used for assets and liabilities with no active market.
The auditor needs to assess the appropriateness of the inputs used and determine whether the fair value measurements are classified correctly in the appropriate level.
7.External Experts:
For complex fair value measurements, the auditor may need to involve external valuation experts. The auditor should evaluate the qualifications, independence, and work of these experts.
8.Disclosures:
The auditor must ensure that the disclosures related to fair value measurements are accurate, comprehensive, and in compliance with the financial reporting framework. This includes information about the methods, assumptions, and inputs used in the fair value measurements.
9.Challenges in Fair Value Auditing:
Auditing fair value can be challenging, especially when using Level 3 inputs, as they involve subjective judgment. The auditor should be particularly vigilant about the risks of management bias in estimating fair value.
10.Documentation:
The auditor must document the procedures performed, the evidence obtained, and the conclusions reached regarding the fair value measurements and disclosures.
In summary, BSA 545 focuses on the auditor's role in auditing fair value measurements and ensuring that they are reasonable, properly determined, and disclosed according to the relevant financial reporting standards. The standard emphasizes the use of professional judgment and thorough evaluation of valuation models, assumptions, and data sources, especially for complex and subjective fair value measurements.