Fair Value and the Missing Correspondence Between Accounting and Auditing

The paper outlines the history of accounting and auditing thought, demonstrating how auditing has had an isomorphic relationship with accounting throughout most of its history. We focus this history on two turning points. The first is the turn from reporting the truth to reporting in accordance with Generally Accepted Accounting Principles, which occurred in the 1960s as a result of the politicization of accounting standard setting. We argue that auditing adapted to this change by establishing a conceptual framework based on checking the correspondence between assertions and established criteria. The second turning point is from historical cost to fair values, which changes the ontological premises of accounting thought in the direction of ontological subjectivity. This has profound consequences for auditing, which so far has failed to develop new epistemic criteria to deal with fair value accounting’s socially constructed reality. We conclude the paper by discussing some implications of this for the future of auditing thought and practice.