SAS No. 42 Auditing Fair Value Measurements and Disclosures 　

Status

Issued by Auditing Standards Committee in Taiwan on 1 July, 2005.

Summary

This Statement addresses audit considerations relating to the measurement, presentation and disclosure of material assets, liabilities and specific components of equity presented or disclosed at fair value in financial statements. Fair value measurements of assets, liabilities and components of equity may arise from both the initial recording of transactions and later changes in value.

Management is responsible for making the fair value measurements and disclosures included in the financial statements. As part of fulfilling its responsibility, management needs to establish an accounting and financial reporting process for determining the fair value measurements and disclosures, select appropriate valuation methods, identify and adequately support any significant assumptions used, prepare the valuation and ensure that the presentation and disclosure of the fair value measurements are in accordance with generally accepted accounting principles.

As part of the understanding of the entity and its environment, including its internal control, the auditor should obtain an understanding of the entity’s process for determining fair value measurements and disclosures and of the relevant control activities sufficient to identify and assess the risks of material misstatement at the assertion level and to design and perform further audit procedures. 　 　 　

The auditor should evaluate whether the fair value measurements and disclosures in the financial statements are in accordance with generally accepted accounting principles.　 　 　 　

The auditor should determine the need to use the work of an expert.　 　 　 　

The auditor should design and perform further audit procedures in response to assessed risks of material misstatement of assertions relating to the entity’s fair value measurements and disclosures.

In making a final assessment of whether the fair value measurements and disclosures in the financial statements are in accordance with generally accepted accounting principles, the auditor should evaluate the sufficiency and appropriateness of the audit evidence obtained as well as the consistency of that evidence with other audit evidence obtained and evaluated during the audit.　　

The auditor should obtain written representations from management regarding the reasonableness of significant assumptions, including whether they appropriately reflect management’s intent and ability to carry out specific courses of action on behalf of the entity where relevant to the fair value measurements or disclosures.　 　

Effective date

This Statement is effective from 1 January, 2006.