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
Common stock valuation 1. Features of common stock (You may review common stock learned from TCA 221) a. Residual claim on income and assets (after debt holders and preferre

What are the strength of Stock transfer note

Tangible Non Current Assets The verification approach is fundamentally similar in each of these.  Extensive disclosure is utilized in most countries and IAS 16 Property Equipm

The management of a newly incorporated company is unsure as to the need for an audit. Your services have been requested to explain to management the concept of auditing. Requir

AsList and define five audit procedures for obtaining audit evidence. (ii) Why is it necessary to obtain corroborating evidence for inquiry and observation? (iii) What is the dif

Specialized Audit Situations Companies carry on thousands of different types of trade, business or professional activities.  It is not possible in a manual on general auditing

1. On 5 August 2012, the financial controller informed you that the board has recently received a letter from the assistant general manager, Mr. Tan. The letter contains a confessi

General phases of control evaluation are: Phase 1: Understand and document • Understand the client's internal control • Document the understanding of internal control o

Statistical sampling – Advantages a) It is scientific and defensible; b) It provides a precise mathematical statement about probabilities of being correct; c) It is efficie

The International Auditing and Assurance Standards Board The IAASB is a Board familiar by IFAC. The associates of the IAASB are selected by the IFAC Board to serve on IAASB. IA