Auditing Accounting Estimates

The increasingly complex business environment and changes in accounting practices mean that auditors need a more robust approach to identifying, assessing and responding to risks of material misstatement for accounting estimates and related disclosures.

To counter this, the IAASB enhanced its standard on auditing accounting estimates to support of audit quality and keep pace with the changing market.

International Standard on Auditing 540 (Revised) is effective for audits of financial statements for periods beginning on or after December 15, 2019.

• Key Changes
  • An enhanced risk assessment that requires auditors to consider complexity, subjectivity and other inherent risk factors in addition to estimation uncertainty. This will drive auditors to think more deeply about the risks inherent to accounting estimates.
  • A closer link between the enhanced risk assessment and the methods, data and assumptions used in making accounting estimates, including the use of complex models.
  • Specific material to demonstrate the standard’s scalability for all types of accounting estimates.
  • Increased emphasis on the importance of applying appropriate professional skepticism when auditing accounting estimates to foster a more independent and challenging skeptical mindset in auditors.
• The Standard
  • International Standard on Auditing 540 (Revised), Auditing Accounting Estimates and Related Disclosures
  • Conforming amendments
• Resources
  • Basis for conclusions
  • At a glance
  • Overview presentations
  • Illustrative examples – credit loss
  • Illustrative examples – simple & complex
  • Flow charts & diagrams
  • Audit client briefing