Which of the following is required of an auditor who is testing the fair value of options in share-based compensation?
A) Using a specialist.
B) Testing the inputs used in the valuation model.
C) Becoming an expert in option-pricing.
D) Using the work of internal auditors.

Question

Quizplus · Accepted Answer

When testing the fair value of options in share-based compensation, it is required of an auditor to test the inputs used in the valuation model. This means examining the assumptions and calculations used to arrive at the fair value, such as the underlying asset price, volatility, and time to expiration. While using a specialist or becoming an expert in option-pricing may be helpful, they are not explicitly required. Using the work of internal auditors may provide some support, but ultimately the responsibility lies with the external auditor to independently test the fair value of share-based compensation options.

Which of the Following Is Required of an Auditor Who