CPA · Question 35 · Area III: Performing Procedures
An auditor is evaluating the sufficiency of audit evidence for a nonissuer's fair value estimate of investment property. The auditor has tested management's significant assumptions and found them to be reasonable. However, the auditor notes that the valuation is highly sensitive to minor changes in the capitalization rate. What is the auditor's BEST course of action?
Answer options:
Conclude that the estimate is unreasonable due to the high sensitivity.
Require management to use a fixed capitalization rate from an industry guide.
Issue a qualified opinion due to estimation uncertainty.
Evaluate whether the disclosures in the financial statements adequately describe the estimation uncertainty and sensitivity.
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