Professional Practices on Auditing Accounting Estimates

Author:Associate Prof. Daniel BOTEZ, Ph. D.

JEL:

DOI:

Keywords:accounting estimates, auditing estimates, fair value, ISA 540

Abstract:
One of the IFAC standards significantly revised in April 2009 is the ISA 540 "Audit of accounting estimates including fair value accounting estimates and related presentations”. \r\n As a result of uncertainties inherent in business, many financial statement items can not be measured with precision, but only estimated. Estimation process involves professional judgments based on the most recent reliable information available. Estimate is an assessment under uncertainty, and evaluation is one of the management assertions that are mandatorily set as basis for financial statements compilation.\r\n The auditor is to ensure that the accounting estimates are reasonable and appropriate. For this, he must take into account that the estimates are influenced by management`s reasoning, which may involve intentional or unintentional influence. \r\n One of the procedures applied by auditors, subject to this study, concerns the issue of risk assessment and other similar activities. As such, the auditor should apply the standards ISA 315 "Identifying and assessing risks of material misstatement in understanding the entity and its environment" and ISA 330 "Response to the auditor`s assessed risks, custom under accounting estimate", particularly in the aspects concerning accounting estimates. Another standard affecting audit procedures of the estimates, in this initial step, is ISA 240 "The Auditor`s Responsibilities for fraud in an audit of financial statements", which aims to revise the judgments and assumptions for detecting any influence from management. \r\n This initial procedure supports the auditor in establishing the nature and type of accounting estimates necessary in the audited financial statements. \r\n

---