AUDIT ON ACCOUNTING ESTIMATES (PURPOSE ("Accounting estimate"…
AUDIT ON ACCOUNTING ESTIMATES
provide guidance on the audit of accounting estimates IN FS
allocate the cost of fixed assets over their estimated useful
loss from a lawsuit.
meet warranty claims.
auditor should obtain sufficient appropriate audit evidence
Management is responsible for making accounting estimates included in FS
simple or complex
routine/nonroutine accounting system
uncertainties, modification based on PSA 700
sufficient appropriate audit evidence
whether an accounting estimate is reasonable AND
one or a combination
of the following approaches
review and test the process used by management
Evaluation of Data and Consideration of Assumptions
Testing of Calculations
Comparison of Previous Estimates With Actual Results
Consideration of Management’s Approval Procedures
use an independent estimate for comparison with that prepared
ordinarily evaluate the data, consider the assumptions
and test the calculation procedures
review subsequent events which confirm the estimate made
to develop the accounting estimate or to use an independent estimatein assessing the reasonableness of the accounting estimate.
final assessment of the reasonableness of the
estimate based on the auditor’s knowledge of the business
consider whether there are significant subsequent transactionsor events which affect the data
reasonable difference : not require adjustment
unreasonable difference: requires adjustment
for periods ending
on or after December 31, 2003.