Reviewing and Assessing Significant Estimates and AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures Financial statement balances include many judgmental estimates. The auditor should consider the historical experience of the client in making past estimates. However, changes in facts, circumstances or the client’s procedures may cause factors different from those considered in the past to become significant to the estimate. Many corporate failures have involved the manipulation of accounting estimates such as loan loss reserves. The auditor should inform the audit committee of the processes used by management in making sensitive accounting estimates and should convey the auditor’s assessment of those processes and accompanying estimates.

Accounting estimates provide management with an opportunity for bias. Select the items that will assist the auditor in evaluating the reasonableness of an estimate. These items are often referred to as key factors and assumptions.

Check all that apply.

a. Often used for accounting estimates in the client’s industry

b. Inconsistent with current economic trends

c. Subjective and susceptible to misstatement and bias

d. Sensitive to variations

e. Significant to the accounting estimate

f. Deviations from historical patterns

Answer rating: 100% (QA)

This section provides guidance to auditors on obtaining and evaluating sufficient appropriate evidential matter to support significant accounting esti... View the full answer