What Auditors Look For in Valuation Documentation

When auditors review valuations, they are rarely focused on the number alone. What matters just as much - often more - is how that number was developed.

In financial reporting, valuations must be supported by clear methodology, documented inputs, and evidence that aligns with applicable accounting and regulatory standards. Without this foundation, even a reasonable price can raise questions during an audit.

Understanding what auditors look for in valuation documentation can help financial reporting teams reduce friction during audit procedures and strengthen the credibility of their reporting.

The Number Is Only the Starting Point

Valuations play a central role in financial statements, particularly when assets or liabilities must be measured at fair value. For auditors, verifying that value requires more than reviewing a single figure.

Instead, auditors evaluate the process behind the valuation, including how market data was used, what assumptions were applied, and whether the methodology aligns with financial reporting standards such as ASC 820, IFRS 13, or GASB 72.

The goal is to determine whether the valuation is reasonable, consistent, and supported by sufficient evidence.

Key Elements Auditors Expect to See

While the exact procedures vary depending on the asset type and the complexity of the valuation, auditors typically look for several core elements in valuation documentation.

1. Documentation of Valuation Inputs

Every valuation relies on inputs, whether they are observable market prices, interest rates, credit spreads, or other financial data.

Auditors expect to see:

• Where the data came from

• How it was obtained

• Why it was considered appropriate for the valuation

Clear documentation of inputs helps demonstrate that the valuation is grounded in reliable information.

2. Transparent Methodology

The methodology used to determine a price is one of the first areas auditors review.

This may include:

• Market-based pricing approaches

• Valuation models

• Comparable transaction analysis

• Discounted cash flow calculations

Auditors look for a clear explanation of why a particular approach was used and whether it is appropriate for the instrument being valued.

3. Evidence Supporting Fair Value Hierarchy Levels

Under ASC 820 and IFRS 13, valuations must be categorized within the fair value hierarchy:

• Level 1: Observable quoted prices in active markets

• Level 2: Observable inputs other than quoted prices

• Level 3: Unobservable inputs requiring modeling or assumptions

Auditors review the documentation supporting how each valuation was classified. This includes evaluating the quality and observability of the inputs used.

4. Analysis of Price Variances or Unusual Movements

If a valuation changes significantly from prior periods—or differs materially from other market indicators—auditors typically expect an explanation.

This may involve:

• Variance analysis

• Market activity review

• Documentation of events affecting the asset’s value

Providing this context helps demonstrate that changes in valuation were understood and appropriately evaluated.

5. Support for Models and Assumptions

For less liquid or complex instruments, valuations may require models or assumptions.

In these cases, auditors often review:

• The structure of the model

• Key assumptions used

• The rationale behind those assumptions

• Supporting market data where available

Proper documentation ensures that these models can be understood, evaluated, and reproduced if necessary.

Why Documentation Matters

When valuation documentation is clear and organized, the audit process tends to move more smoothly. Auditors can quickly understand how the valuation was developed, what evidence supports it, and whether the approach aligns with relevant standards.

Poor documentation, on the other hand, often leads to:

• Additional audit inquiries

• Requests for supplemental support

• Delays in financial reporting timelines

In complex financial environments, having well-documented valuation processes can make a meaningful difference in both efficiency and audit outcomes.

Supporting the Valuation Process

For many financial reporting teams, particularly those working with complex or less liquid instruments, maintaining consistent valuation documentation can be challenging.

This is one reason firms often rely on independent pricing providers whose methodologies are built around transparency, documentation, and regulatory alignment.

At Harvest, valuations are developed with these expectations in mind. Our pricing processes focus on providing independent valuations supported by documented methodologies, clearly identified inputs, and transparency that aligns with financial reporting standards.

Final Thoughts

Valuations are a critical component of financial reporting, and the strength of those valuations often depends on the quality of the documentation behind them.

By ensuring that inputs, methodologies, assumptions, and classifications are clearly documented, financial reporting teams can strengthen their reporting processes and reduce uncertainty during audits.

And when complex instruments require additional expertise, working with experienced valuation specialists can help ensure that every price is supported by a process auditors can understand and trust.

If your team is navigating complex valuations or preparing for an upcoming audit cycle, Harvest is here to help.