Evaluation of Results of Audit ProcedureEvaluation of Results of Audit Procedures

Evaluation of Results of Audit Procedures

28 The auditor shall make a final assessment of the reasonableness of the entity’s accounting estimates based on the auditor’s understanding of the entity and its environment and whether the estimates are consistent with other audit evidence obtained during the audit.

29 The auditor ordinarily considers whether there are any significant subsequent transactions or events which affect the data and the assumptions used in determining the accounting estimates.

30 Because of the uncertainties inherent in accounting estimates, evaluating differences can be more difficult than in other areas of the audit. When there is a difference between the auditor’s estimate of the amount best supported by the available audit evidence and the estimated amount included in the financial report, under ASA 320 Materiality and Audit Adjustments, the auditor needs to determine whether such a difference requires adjustment. If the difference is reasonable, for example, because the amount in the financial report falls within a range of acceptable results, it may not require adjustment. However, if the auditor believes the difference is unreasonable, management would be requested to revise the estimate. If management refuses to revise the estimate, the difference would be considered a misstatement and would be considered with all other misstatements in assessing whether the effect on the financial report is material.

31 Ordinarily, the auditor also considers whether individual differences which have been accepted as reasonable are biased in one direction, so that, on a cumulative basis, they may have a material effect on the financial report. In such circumstances, the auditor ordinarily evaluates the accounting estimates taken as a whole.