Considerations on Audit of Estimates in Financial Statements

Author:Graham FAIRCLOUGH

JEL:M 42

DOI:

Keywords:audit of estimates, fair value, impairment of assets, provision, contingent liabilities, contingent assets

Abstract:
Audit of estimates is subject to a high degree of uncertainty. The degree of audit risk is somewhat reduced by GAAP systems accepting that more than one estimate of the same uncertainty may give a true and fair view. This is why GAAP systems often require substantial disclosure of the circumstances giving rise to the uncertainty; so that readers can make up their own mind. \r\n\r\nAudit of estimates is likely to be a common feature in practice. Auditor’s judgment is often difficult to challenge. Failure to follow the prescribed steps that lead to the use of auditor’s judgment however is much easier to attack in any negligence action. The professional auditors in practice will do well to be familiar with the enhanced requirements of ISA 540.

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