Sub-prime debacle spurs auditor alert

The federal audit watchdog gave corporate auditors guidance Monday to sort through the risks associated with the sub-prime credit situation.

In its audit practice alert, the Public Company Accounting Oversight Board provided accountants with more information related to fair value measurements and disclosures.

It was only the second time the panel had issued an audit alert, which is intended to highlight noteworthy circumstances that may affect how auditors conduct audits under existing standards and laws.

The first audit alert was issued in June 2006 on the topic of backdating stock options. More than 150 companies have faced government or internal probes of suspected backdating, which is illegal if not disclosed and properly accounted for.

This time, the oversight panel said it was motivated to issue the alert because of the auditing challenges presented by the sub-prime mortgage debacle.

“This alert does not create any new auditing requirements,” Tom Ray, the panel’s chief auditor, said in a statement. “We issued the alert because we believe it will be helpful to auditors as they gear up to complete their year-end auditing work.”

The alert said lower volumes of trading in certain types of securities might make it more difficult to obtain information to estimate the fair value of financial instruments.