Indicators of Possible Management Bias (Indicators of Possible Management Bias (Ref: Para. 21)

Indicators of Possible Management Bias (Ref: Para. 21)

1. During the audit, the auditor may become aware of judgements and decisions made by management which give rise to indicators of possible management bias. Such indicators may affect the auditor’s conclusion as to whether the auditor’s risk assessment and related responses remain appropriate, and the auditor may need to consider the implications for the rest of the audit. Further, they may affect the auditor’s evaluation of whether the financial report as a whole is free from material misstatement, as discussed in ASA 700.[27]
2. Examples of indicators of possible management bias with respect to accounting estimates include:

• Changes in an accounting estimate, or the method for making it, where management has made a subjective assessment that there has been a change in circumstances.
• Use of an entity’s own assumptions for fair value accounting estimates when they are inconsistent with observable marketplace assumptions.
• Selection or construction of significant assumptions that yield a point estimate favourable for management objectives.
• Selection of a point estimate that may indicate a pattern of optimism or pessimism.