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«VOLUM E 1 1, N UM B E R 1 I S SN 2 1 6 8 - 0 6 1 2 F L ASH DR I V E I S SN 1 9 4 1 - 9 5 8 9 ON L I N E T h e In s t it ut e f o r Bu s i n e s s an ...»

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The sanction imposed against the prosecution is that if the accused is not properly advised of his rights, and if the accused confesses, and if the appropriate, timely application is made to a court, and if the court finds that the accused’s rights have been violated, the confession cannot be used as evidence against him. This does not mean that if the Miranda rights are violated the accused automatically goes free. As happened to Ernesto Miranda in the re-trial stage, if there is sufficient evidence aside from the suppressed confession to convict, a conviction can be obtained. Miranda has even been applied to international interrogations, and comes into play today in the war against terrorism (Reville, 2009).

Supreme Court Justice Opinions and Votes (by Ideology) Decision: 5 votes for Miranda, 4 votes against Figure 3: Source: The Oyez Project, Miranda V. Arizona, 384 U.S. 436 (1961)

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Dollre Mapp, Clarence Earl Gideon and Ernesto Miranda were apparently not persons you would be inclined to write home about. They were accused of serious crimes, and, although at least temporarily cleared of those charges, later were convicted (at least in the cases of Mapp and Miranda) of acts that society GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 295 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 does not tolerate. Yet, their importance is not measured by the company they kept or the activities that they were involved in. They are remembered because they, with the assistance of competent counsel, stood up for the constitutional protections that benefit all in that same society. Yes, they were characterized at the time as common criminals, perpetrators if you will, and so forth. But collectively, their legacy is not measured by their convictions or the time they served in prison for their would-be unacceptable behavior.

They are known for the constitutional breakthroughs that have ultimately made law enforcement more professional, resulting in all members of society better protected when accused of illegal acts. All members of society are better guaranteed a fairer day in court due to the plight these three found themselves in and the attorneys who picked up carried the torch of liberty on their behalf, and ultimately on behalf of all.


U.S. CONST. amend IV, V and VI Mapp v. Ohio, 367 U.S. 643 (1961) Gideon v. Wainwright, 372 U.S. (1963) Miranda v. Arizona, 384 U.S. 436 (1966) Dickerson v. United States, 530 U.S. 428 (2000) Reville, P. (2009) “International Application Of The Fifth Amendment,” International Business and Economics Journal, Vol. 8, No. 10.

Time, Inc. Specials (2015) “The Supreme Court; Decisions That Changed America” The Oyez Project (Mapp v. Ohio, Gideon v. Wainwright, Miranda v. Arizona).


Patrick J. Reville is a Professor of Business Law at Iona College, Hagan School Of Business, New Rochelle, N.Y. He is also a practicing attorney in New York, having represented criminal defendants in thousands of matters over a period of in excess of forty-five (45) years. His published research areas of interest include criminal law, gun control, condemnation, and the Commerce Clause.

John E. Cullen is an Associate Professor of Accounting and Business at Mercy College, Bronx, N.Y. He is also a practicing attorney in New York and the Federal Courts. He has co-authored and published research papers on immigration and executive powers. Attorney Cullen received an honorable discharge from the United States Marine Corps., and served his country in the United States Peace Corps.

GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 296 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1

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This study collects the views of Tunisian external auditors about the impact of audit challenges related to fair value on audit quality, and the role of ISA 540 (Revised and Redrafted) in mitigating these challenges.

Based on responses from 52 Auditors to our questionnaire, we found out that the fair value is perceived as engendering technical difficulties for auditors. However, these challenges at fair value have no negative impact on audit quality. On the other hand, 78.8% of our respondents believe that ISA 540 (Revised and Redrafted) plays a significant role in mitigating the audit challenges related to fair value. Thus our study shows that in the eyes of Tunisian external auditors, benefits of fair value outweigh its disadvantages and ISA 540 (Revised and Redrafted) provide auditors by all the necessary tools to deal with audit challenges related to fair value estimates.

JEL: M41, M42, C12, C25 KEYWORDS: Audit Quality; Fair Value; ISA 540 (Revised and Redrafted); Logistic Regression


Accounting standards are the basis on which is built any financial information. Thus, before issuing an opinion on the quality of financial statements, one must question the quality of standards that led to their establishment. In this regard, some research had indicated the presence of a significant relationship between the accounting framework adopted and earnings management (Barth et al. (2008)). The financial scandals that were arisen in the United States and Europe, such as Enron and Worldcom, have given rise to doubts, among investors, about the sincerity and credibility of disclosed financial information. To restore investor’s confidence in the quality of published financial statements, the European Union (EU) applies to all the countries if the EU, had made mandatory the application of IFRS (International Financial Reporting Standards) for listed companies establishing consolidated accounts from January 1st 2005. In order to provide an international regulatory framework in favor of having financial information which is at the same time understandable, relevant and comparable for investors. Other countries, such as Australia, Turkey and South Africa, among others, had set the same rule.

IFRS are inspired by the Anglo-Saxon model that favors the dominance of an economic approach which estimate how much the company is currently worth, in detriment of a historical approach which reflects what has happened, produced and certain.So with IFRS, we have moved forward from a Stakeholder model to a Shareholder model prepared, in priority, to guarantee the specific informational needs of shareholders and investors. The impact of the transition to IFRS on the quality of financial reporting has been the subject of several empirical studies (Zimmermann & Goncharov (2003); (Leuz & Verrecchia (2000) and (Bartov et al. (2005)). According to these studies, this impact differs from one country to another, and sometimes, from one study to another within the same context. This topic was the subject of the keenest doctrinal controversies; there are two streams of research.

GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 297 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 Proponents of IFRS are in favor of such adoption and believe that through these standards, which provide managers with limited flexibility in accounting choices, investors will have more transparent financial statements. On the other hand, opponents assume that IFRS adoption is a necessary condition for improving information quality but is still insufficient because it must take into account environmental factors (Ball et al. (2000)). Adversaries of such adoption justify their views based on the fact that IFRS are complex, abstract, expensive, and they are based on the principle of fair value, which is often accused of being a crisis accelerator (Laux & Leuz (2009)).

These suspicions on IFRS, particularly on fair value, were accompanied with a total loss of confidence in audit quality. According to Sikka (2009), audit firms have shown an increasing willingness to violate the laws, regulations, and help their clients to publish flattering financial statements. The growing demand on fair value accounting has resulted in a series of challenges for external auditors and auditing standard setters (Kumarasiri & Fisher (2011)). In recent years, we noted the disappearance of local accounting systems of different countries in detriment of the appearance of a single international accounting system. Tunisia was not apart of this movement. Indeed, the Tunisian authorities has aimed to adopt IFRS around 2014. And given the political and economic instability in the country since 2011, no decision has been taken According to Ball (2006), the implementation of IFRS has not received enough attention and the implementation of fair value, among other IFRSs, may be more problematic given its complex and controversial nature, as well as other political and economic factors deeply rooted and vary by country. To successfully adopt IFRS in Tunisia, a change process must be designed in order to measure the complexity and depth of IFRS.

Therefore, examining the implementation of fair value at each country is beneficial to get a further insight into the implementation of IFRS.

This paper aims to examine the impact of audit challenges in fair value on audit quality as required by ISA 540 (Revised and Redrafted). Our decision to retain the Tunisian context is explained by the debate about adoption of IFRS in the current environment and the lack of studies that have addressed this topic. The objectives of our research are first, to examine the impact of fair value on audit quality while addressing the challenges audit fair value. And second, to analyze the impact of failures of the ISA 540 (Revised and Redrafted) on its role in mitigating the challenges at fair value. In this paper, we first present the literature review, then the methodology and the results and finally the conclusion.


In this part we present two research streams: the research stream that studies the fair value audit challenges and the research stream that studies the failures at the ISA 540 (Revised and Redrafted).

Fair Value Audit Challenges To understand how accounting estimates are verified, Griffith et al. (2012) interviewed 24 auditors belonging to six major audit firms, during the months of October and November. These interviewees noticed that the accounting estimates are difficult to verify because they must assess the reasonableness of the estimates rather than simply verify their accuracy. Montague (2010) sought to address potential problems with the audit of financial instruments measured at fair value. She concluded that the auditors should ensure that managers has classified assets / liabilities measured at fair value under the appropriate hierarchy. Martin et al. (2006), based on psychological studies to highlight the various problems that may occur during the verification of estimates at fair value, pointed out that the knowledge of specialized assessment needed to audit effectively estimates at fair value will be difficult for auditors to acquire and maintain, due to its complexity. They described the problems related to fair value from three different perspectives. First problem is the challenges to identify and assess the fair value estimates. Second is the potential bias of direction. Finally, the third problem is problem associated with the lack of internal control specific to fair value estimates.

GCBF ♦ Vol. 11 ♦ No. 1 ♦ 2016 ♦ ISSN 1941-9589 ONLINE & ISSN 2168-0612 USB Flash Drive 298 Global Conference on Business and Finance Proceedings ♦ Volume 11 ♦ Number 1 Kumarasiri & Fisher (2011) sought to identify and examine the issues and challenges faced by auditors in auditing estimates at fair value in a context of developing countries based on a survey of 156 auditors in Sri Lanka. Among the problems they found is the prevalence of inactive markets in developing countries.

According to the above-mentioned studies, we can formulate the following assumptions:

H1a: the complexity of fair value measures has a negative impact on audit quality.

H1b: The potential biases by managers have a negative impact on audit quality.

H1c: lack of technical knowledge on the fair value measures has a negative impact on audit quality.

H1d: the absence of an active market has a negative impact on audit quality.

H1e: the absence of specific internal control for fair value measurement has a negative impact on audit quality.

Failures at the ISA 540 (Revised and Redrafted) Canadian Public Accountability Board (CPAB) (2012,) in its attempt to examine the effectiveness of the post-implementation of clarified ISAs, identified a number of deficiencies in ISA 540 that may affect audit quality. The members of board believe that the effectiveness of the audit procedures required by ISA 540 that are implemented in response to risks of significant anomalies are often insufficient to support the conclusion of the auditor on the reasonableness of the accounting estimates. Jeppesen & Liempd (2011) noted that when the auditor makes an estimate and uses assumptions or methods different from those used by managers, a difference may arise because the auditor used different but equally valid assumptions.

Auditors are technically unable to determine what to do with the equally valid assumptions. According to

the above-mentioned studies, we can formulate the following assumptions:

H2a: failures of audit risk procedures in ISA 540 have a negative effect on its role in mitigating fair value audit challenges.

H2b: the lack of guidelines for equally valid assumptions in ISA 540 (revised and redrafted) have a negative effect on its role in mitigating fair value audit challenges.


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