A note on auditing fair value of investment properties
| DOI | https://doi.org/10.1108/JPIF-01-2021-0009 |
| Published date | 25 February 2021 |
| Date | 25 February 2021 |
| Pages | 77-84 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Bo Nordlund,Johan Lorentzon,Hans Lind |
Practice Briefing
A note on auditing fair value of
investment properties
Bo Nordlund
Karlstad Business School, Karlstads Universitet, Karlstad, Sweden
Johan Lorentzon
Fakulteten for humaniora och samhallsvetenskap, Karlstads Universitet,
Karlstad, Sweden, and
Hans Lind
Building and Real Estate Economics, Kungliga Tekniska Hogskolan,
Stockholm, Sweden
Abstract
Purpose –The purpose of this article is to study how fair values in financial reports are audited.
Design/methodology/approach –The study is a qualitative case study based on in-depth interviews.
Findings –One important finding is that auditors anchor in the figure presented by the company, and despite
the auditing efforts, there is a substantial risk of management bias in the fair values reported. There is a risk for
confirmation bias.
Research limitations/implications –Relatively, few respondents were employed in this study, but their
background and competence lead to the assessment that the study provides a representative pictureof what is
being investigated.
Practical implications –Auditors may need to develop ways of performing auditing of fairvalues to reduce
the risks identified in this study.
Social implications –This study presents a perspective of theauditing process enabling an evaluation of the
quality of fair value estimates regarding investment properties in the financial reports. This study also
provides users of financial reports as investors, bankers and other institutions with an enhanced
understanding of reported estimates of fair (market) values.
Originality/value –Very few studies have investigated how auditors evaluate fair values of investment
properties. This study contributes by giving users of financial reports an enhanced understanding of the
quality of reported estimates of fair (market) values.
Keywords Fair value, Disclosure, Auditing, Investment property, IFRS 13, IAS 40
Paper type Case study
1. Introduction
The quality of property valuations is important for the functionof property markets and for
financial stability. A number of mechanisms can contribute to higher quality, e.g. different
kinds of regulationand authorization of property valuers and/or variousforms of government
supervision.In this note, another mechanism is in focus, and that is how accountants auditfair
values of investmentproperties when they audit financial reports.In Sweden, where this study
was carried out, supervision of auditors is handled by the Swedish Inspectorate of Auditors
(SIA). In other countries, thereare corresponding monitoring functions.
Fair value of
investment
properties
77
© Bo Nordlund, Johan Lorentzon and Hans Lind. Published by Emerald Publishing Limited. This article
is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce,
distribute, translate and create derivative works of this article (for both commercial and non-commercial
purposes), subject to full attribution to the original publication and authors. The full terms of this licence
may be seen at http://creativecommons.org/licences/by/4.0/legalcode
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 21 January 2021
Revised 8 February 2021
Accepted 8 February 2021
Journal of Property Investment &
Finance
Vol. 40 No. 1, 2022
pp. 77-84
Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-01-2021-0009
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