Audit of accounting estimates, Auditing

Audit of Accounting Estimates

An accounting estimate is described in ISA 540 Audit of Accounting Estimates as 'an estimation of the amount of an item in the absent of a precise means of measurement'. Estimates involved amounts for accumulated depreciation, deferred tax; write downs to losses on long term contracts, total realizable value, and legal claims against the company, another contingent liabilities and other areas that a important element of judgment is necessary.

That items are inherently more risky than non-judgmental items and control risk is generally higher as these are non-routine transactions. So Management is responsible for creating approximation.

The audit of accounting guesses under ISA 540 includes the following three steps as:

  1. Testing and Review of the process used through management to increase the estimate

This will include evaluation of the data and considerations of assumptions on such calculate is based. Management's calculates as to warranty costs, as an example should be based on past experience as to be in based and the level of claims. Management's calculates as to warranty costs, as an example should be based on past experience like to the level of claims and be in line along with the auditor's information of the business. It will include checking also of the mechanical calculations, comparison along with estimates made in prior times and consideration of management's approval process.

  1. Use an independent calculation generated through the auditor to compare along with management's calculation
  2. Review subsequent events that confirm the estimate

Wherever in the case of contingent liabilities, subsequent events 'crystallize' the liability there will be no requirement to review management's processes or requirement independent calculation. The auditor will usually test the estimation of the calculations, asses the assumptions created as the court is 90% probable to find in our favour compare estimates along with those made in previous duration and ensure about the estimate is in accordance along with the auditor's information of the business and the other audit evidence obtained.

Posted Date: 1/28/2013 1:22:32 AM | Location : United States







Related Discussions:- Audit of accounting estimates, Assignment Help, Ask Question on Audit of accounting estimates, Get Answer, Expert's Help, Audit of accounting estimates Discussions

Write discussion on Audit of accounting estimates
Your posts are moderated
Related Questions
Taxation - Audit Process Companies suffer corporation tax. The Companies Act use that corporation tax payable on the profits of any specific year should be matched against tho

State the FIVE threats contained within Auditor''s Code of Ethics and Conduct and for each threat list ONE example of a circumstance that may create the threat.

Communications to Regulatory and Enforcement Authorities The auditor’s professional responsibility to sustain the confidentiality of client information ordinarily prevents repo

Advantage and Disadvantage of Judgmental Sampling The advantages of judgment sampling The approach is understood as well and has been refined through experience o

Litigation and claims ISA 501 Audit Evidence - Additional Consideration for exact Items requires such auditors should carry our process to become aware of any material litig

Cost and Authorization - Detailed audit of stock Cost A favor of the auditor this is restricted generally to determining the technique adopted through the organization

Planning for Stock taking Stock taking should be planned well in carried out and advance carefully and systematically through persons fully informed of the duties involved. Th

Audit Function The audit functions as follows as: 1. To verify the estimation of timing differences; 2. To ensure such permanent differences have not been got into accou

What is an audit, what financial records are available and what is their individual function in completing your audit? Audit is an independent examination of financial informat

Process to Adopt Liabilities It is significant that the auditor realises which such liabilities can exist and he should obtain reasonable steps to unearth them whether they ex