Audit Procedures Responsive to the Risk

Audit Procedures Responsive to the Risk of Material Misstatement of the Entity’s Accounting Estimates

11 The auditor shall design and perform further audit procedures to obtain sufficient appropriate audit evidence as to whether the entity’s accounting estimates are reasonable in the circumstances and, when required, appropriately disclosed.

12 The audit evidence available to detect a material misstatement in an accounting estimate will often be more difficult to obtain and less persuasive than audit evidence available to detect a material misstatement in other items in the financial report. Ordinarily, the auditor’s understanding of the entity and its environment, including its internal control, assists the auditor in identifying and assessing the risks of material misstatement of the entity’s accounting estimates.

13 Under ASA 315, the auditor needs to have an understanding of the procedures and methods, including relevant control activities, used by management in making the accounting estimates to identify and assess risks of material misstatement in order to design the nature, timing and extent of the further audit procedures.

14 The auditor shall adopt one or a combination of the following approaches in the audit of an accounting estimate:

(a) review and test the process used by management to develop the estimate;

(b) use an independent estimate for comparison with that prepared by management; or

(c) review of subsequent events which provide audit evidence of the reasonableness of the estimate made.