The Impact of Fair Value Measurement Risks on the Auditor’s Opinion: An Applied Study

This research investigates the impact of fair value measurement risks on auditors’ opinions. Fair value accounting, especially at Level 3, relies on unobservable inputs, which can lead to subjective judgments, estimation uncertainties, and increased manipulation. These complexities pose significant challenges for auditors, who must assess fair value estimates amidst heightened litigation risks. Utilizing a sample of 30 firms across 12 sectors, focusing on firms listed in the EGX 100 index from 2018 to 2022, the research applies two models, the Absrel OCI model and an inflation-adjusted revaluation model (CPI), to measure fair value measurement risks. The findings reveal that heightened fair value risks significantly affect auditors’ decisions. The research contributes practical models that aid auditors in evaluating fair value risks, reducing audit complexity, and mitigating litigation risks. This research offers actionable insights for auditors and standard-setters aiming to enhance audit reliability and address the manipulation challenges associated with fair value measurements.