Example programs for auditing an organization's accounting estimates. Auditing estimates. Application guidance and other explanatory material

International Auditing Standard ISA 540, as well as Russian auditing rules (standards) establish requirements for the audit of accounting estimates contained in financial (accounting) statements. These requirements are not intended to apply to predicted or expected testing. financial information although many of the procedures in it may be suitable for this purpose.

The auditor should obtain sufficient appropriate audit evidence to support the accounting estimates.

Essence of Estimated Values... Estimated values ​​are understood to be approximately determined or calculated by the employees of the audited entity on the basis of their professional judgment of the values ​​of some indicators in the absence of precise methods of their determination.

Examples of estimated values:

• estimated reserves;
• depreciation;
• accrued income;
• deferred tax assets and liabilities;
• reserve to cover losses incurred as a result of financial and economic activities;
• losses on construction contracts recognized prior to their completion.

The management of the audited entity is responsible for the preparation of the estimated values ​​included in the financial (accounting) statements. These estimates are often computed under conditions of uncertainty about the outcome of events that have occurred in the past or are likely to occur in the future, and require the use of subjective professional judgment. If estimated values ​​are used in the preparation of financial (accounting) statements, the risk of material misstatements in such statements increases.

Features of the determination of estimated values... The process of determining the estimated value can be simple or complex, depending on the specifics of the calculated indicator.

An estimate may be part of a permanently operating accounting system or part of a system that is only functional at the end of the reporting period. In many cases, estimates are derived using formulas and factors based on experience, such as using standard depreciation rates for each category of property, plant and equipment or using a standard percentage of sales revenue to calculate the provision for warranty coverage.

Uncertainties in the calculation of the indicator or lack of objective data may result in the inability to obtain reasonable estimates. In such cases, the auditor should decide whether to modify the auditor's report on this basis.

Audit Procedures Where Accounting Estimates Are Available... The auditor shall obtain sufficient appropriate audit evidence as to whether the accounting estimate is reasonable in the circumstances and appropriately disclosed, if necessary. Evidence supporting the estimated value is often more difficult to obtain and less likely to be unambiguously interpreted than evidence supporting other items of financial (accounting) statements.

• check in general and in detail the procedures used by the management of the audited entity in obtaining the estimated value;
• use an independent assessment to compare with the one prepared by the management of the audited entity;
• check subsequent events, including events after the reporting date, to confirm the correctness of the estimate.

General and detailed verification of the procedures used by the management of the audited entity... Auditor actions typically taken in general and detailed reviews of the procedures used by the auditee's management include:

• evaluating the inputs and considering the assumptions on which the estimate is based;
• arithmetic verification of calculations performed during the assessment; if possible, comparison of estimates of previous periods with the actual results of these periods;
• consideration of procedures for approval of accounting estimates by the management of the audited entity.

The auditor should determine how accurate, complete and relevant are the inputs on which the estimate is based. If data obtained from the accounting system is used, they must be consistent and not contradict other accounting data.

The auditor may also look for evidence in information obtained from third parties. So, when studying the assessments of the management of the audited entity in relation to the financial consequences of litigation and claims, it is advisable for the auditor to seek information from an organization that provides legal services and advice to the audited entity.

The auditor should determine whether the collected data has been properly analyzed and projections are made that form a reasonable basis for determining the accounting estimates.

In assessing the assumptions on which an accounting estimate is based, the auditor should determine whether they are:

• reasonable in light of the actual results of previous periods;
• applied consistently with the assumptions used to arrive at other accounting estimates;
• consistent with the relevant management plans of the audited entity.

The auditor should pay particular attention to assumptions that are highly dependent on changes in inputs and are easily subject to material misstatement.

If the valuation process is complex, using specific techniques, it may be necessary for the auditor to draw on the work of experts, such as engineers, when assessing bulk stocks.

The auditor should check the reasonableness of the formulas used by the management of the audited entity in determining the accounting estimates.

The auditor should conduct an arithmetic check of the calculations, which are followed by the management of the audited entity.

Whenever possible, the auditor should compare the estimates for previous periods with actual results for the same periods. This comparison should help:

• Obtain audit evidence about the overall reliability of the valuation procedures used by the auditee.
• consider the need to adjust the formulas used to obtain estimates;
• determine whether the audited entity took into account the differences between actual results and previous estimates, and whether, where necessary, appropriate adjustments were made and disclosures were made in the financial (accounting) statements.

Significant accounting estimates are usually reviewed and approved by the management of the auditee. The auditor should check whether the estimated value has been reviewed and approved by the appropriate level of management, and whether the calculation is executed in the proper source documents.

Using an independent assessment... The auditor may independently conduct or obtain from a third party an independent assessment and compare it with the estimated value prepared by the management of the audited entity. When using an independent assessment, the auditor should ensure that the underlying data are reasonable, consider the necessary assumptions, and verify the calculation procedures used for that independent assessment. It may also be useful to compare the estimates for previous periods with the actual results of those periods.

Checking subsequent events... Transactions and events after the end of the reporting period, but before the audit is complete, may provide audit evidence about the accounting estimates prepared by the auditee's management. The auditor's general review of such transactions and events may reduce or even eliminate the need to review the procedures followed by the auditee's management in preparing an accounting estimate, or the need for independent assessment when considering the reasonableness of an accounting estimate.

Evaluation of the results of audit procedures... The auditor should make a final estimate of the reasonableness of accounting estimates based on knowledge of the auditee's activities and whether the estimates are consistent with other audit evidence obtained in the audit.

The auditor should consider whether the audited entity takes into account any significant subsequent financial transactions or events that affect the inputs or assumptions used in determining the accounting estimate.

Due to the inherent uncertainty of accounting estimates, assessing differences can be more difficult than in other areas of the audit. If there is a discrepancy between the auditor's estimate of the amount supported by the available audit evidence and the value of the estimated value reflected in the financial (accounting) statements, the auditor should determine whether there is a need for adjustment due to the presence of such a discrepancy. If the existing difference is reasonable (for example, due to the fact that the amount contained in the financial (accounting) statements does not go beyond the limits of an acceptable error), the auditor does not need to require an adjustment. However, if the auditor considers that the existing difference is not reasonable, the management of the audited entity should be asked to revise the accounting estimate. In case of refusal to revise the estimated value, the existing difference should be considered a misstatement and considered together with other misstatements in assessing whether the consequences of such misstatements are material for the financial (accounting) statements.

The auditor should also consider whether the management of the auditee is not using a biased approach to the individual values ​​used for the calculation, when each of them individually is in an acceptable range, but at the same time, an overestimated or underestimated value from such a range is deliberately used. so that, after applying a set of initial values ​​to the calculation procedures, to obtain a result that is deliberately distorted in the desired direction. In such circumstances, the auditor should evaluate the reasonableness of accounting estimates, not individually, but collectively.

Estimated values ​​are the values ​​of some indicators that are approximately determined or calculated by the employees of the audited entity on the basis of professional judgment in the absence of precise methods for their determination, including:

a) estimated reserves;

b) depreciation charges;

c) accrued income;

d) deferred tax assets and liabilities;

e) reserve to cover losses incurred as a result of financial and economic activities;

f) losses under construction contracts recognized prior to the termination of these contracts.

Estimates are generally calculated under conditions of uncertainty about the outcome of events that have occurred in the past or are likely to occur in the future, and require professional judgment. If there are estimated values ​​in the financial (accounting) statements, the risk of their material misstatements increases.

The calculation of estimated values, depending on the specifics of a particular indicator, can be simple or complex. Complex calculations may require specialized knowledge and professional judgment.

In many cases, estimates are calculated using formulas and ratios based on the experience of the auditee (for example, standard depreciation rates for a group of fixed assets, standard percentage of sales revenue to calculate a provision for future expenses for warranty repair and warranty service of products for which the service life is established). In such cases, the auditee's management should periodically revise the formulas and ratios, for example by reassessing the remaining useful lives of the assets or comparing actual results with the estimate and adjusting the formula as necessary.

Issues of audit of estimated values ​​are governed by rule (standard) No. 21 "Features of audit of estimated values" (introduced by Decree of the Government of the Russian Federation of April 16, 2005 N 228)

The auditor shall obtain sufficient appropriate audit evidence about whether the accounting estimate is appropriate in the circumstances and whether the accounting estimate has been appropriately disclosed, if necessary. Evidence supporting the estimated value is usually more difficult to obtain, and they are less likely to be unambiguously interpreted in comparison with evidence supporting other items of financial (accounting) statements.

When checking estimates, the auditor is advised to:

a) conduct a general and detailed review of the procedures used by the management of the auditee in calculating the estimated value;

b) use an independent assessment to compare with the assessment carried out by the management of the audited entity;

c) check subsequent events, including events after the reporting date, to confirm the correctness of the calculation made.

Transactions and events that have occurred and occurred after the end of the reporting period, but before the end of the audit, may provide audit evidence about the accounting estimates calculated by the management of the audited entity. The auditor's general review of such transactions and events may reduce or eliminate the need to review the procedures followed by the auditee's management in calculating an accounting estimate, or the need for an independent assessment to assess the reasonableness of an accounting estimate.

The auditor's actions taken during the general and detailed verification of the procedures used by the management of the audited entity are carried out in 4 stages:

Step 1: Evaluate the input data and consider the assumptions on which the estimate is based;

The auditor should determine:

A) how accurate, complete and relevant are the underlying data on which the estimate is based. In the case of using the data obtained in accounting, they must be consistent and not contradict other accounting data.

b) the collected data have been properly analyzed and forecasts made that form a reasonable basis for calculating the estimates.

The auditor should assess whether the auditee has appropriate justification for the most critical assumptions used in making the accounting estimate. In some cases, assumptions are based on government statistics, including projected inflation, interest rates, employment and expected market growth, etc. In other cases, assumptions are specific to the auditee and are based on internal sources of information.

In assessing the assumptions on which an accounting estimate is based, the auditor should consider whether they are:

a) reasonable, taking into account actual results for previous periods;

b) consistently applied with the assumptions used to calculate other estimates;

c) agreed with the management plans of the audited entity.

The auditor should pay particular attention to assumptions that are highly dependent on changes in inputs and are easily subject to material misstatements.

With a complex calculation using special methods, the auditor can take advantage of the results of the work of experts.

The auditor should check the correctness of the formulas used by the management of the audited entity in calculating the accounting estimates. This general examination is based on the auditor's knowledge of the following matters:

a) financial results of the audited entity for previous periods;

b) the practice followed by other economic entities of the given branch of the economy;

c) plans of the audited entity's management communicated to the auditor.

Stage 2. arithmetic check of calculations;

The auditor should conduct an arithmetic check of the calculations. The nature, time frame and scope of audit procedures for such verification depend on the complexity of the calculation of estimated values, the auditor's assessment of the reliability of the procedures and methods used by the audited entity, as well as the materiality of the estimated values ​​for the financial (accounting) statements as a whole.

Stage 3 Comparison of calculations in relation to previous periods with actual results for these periods (if possible);

a) Obtaining audit evidence about the overall reliability of the assessment procedures used by the auditee;

b) understanding the need to adjust the formulas for calculating the estimated values;

c) determining whether the auditee took into account the differences between actual results and previous estimates, and whether appropriate adjustments and disclosures were made in the financial (accounting) statements.

Stage 4 consideration of procedures for approval of accounting estimates by the management of the audited entity.

Significant accounting estimates are generally reviewed and approved by the auditee's management. The auditor should check whether the accounting estimate has been reviewed and approved by the appropriate level of management, and whether the calculation is completed with appropriate documents.

The auditor should make a final assessment of the reasonableness of accounting estimates based on knowledge of the auditee's activities and whether the estimates are consistent with other audit evidence obtained in the audit.

The auditor should consider whether the auditee takes into account any subsequent transactions or events that affect the inputs or assumptions that are used in calculating the accounting estimate.

Due to the inherent uncertainty of accounting estimates, assessing differences may be more difficult than in other areas of the audit. If there is a discrepancy between the auditor's estimate of the amount supported by audit evidence and the estimated value reflected in the financial (accounting) statements, the auditor should determine whether there is a need to adjust the financial (accounting) statements due to the presence of such a discrepancy. If the difference is reasonable (for example, due to the fact that the amount in the financial (accounting) statements does not go beyond the limits of an acceptable error), the auditor does not need to require an adjustment. If the auditor believes that the existing difference is not reasonable, he should contact the management of the audited entity with a proposal to revise the accounting estimate. In case of refusal, the difference should be considered a misstatement and considered together with other misstatements in assessing whether the consequences of such misstatements are material for the financial (accounting) statements.

The auditor should also consider whether the management of the audited entity is not using an inappropriate approach to the individual values ​​used to calculate the values, when each of them individually is in an acceptable range, but at the same time, it intentionally uses an overestimated or underestimated value from such a range. so that, after applying a set of initial values ​​to the calculation procedures, to obtain a result that is deliberately distorted in the desired direction. In such circumstances, the auditor should not assess the reasonableness of accounting estimates individually, but collectively.

"Audit statements", 2008, N 6

Explains the main provisions of the international standard on auditing ISA 540 "Audit of accounting estimates". The individual sections of the standard are characterized in detail.

Estimated values ​​mean approximate values ​​of accounting indicators calculated by the management of an economic entity, admissible in accordance with accounting rules if it is impossible to determine exact values ​​or in the absence of independent estimates external to the economic entity.

These indicators include the following.

1. Reserve for doubtful debts.
2. Allowance for impairment of investments in securities.
3. Accounts payable for unbilled work and services accrued in accordance with contracts.
4. Reserves for future expenses and payments, including:

the upcoming vacation payment;

for the payment of annual remuneration for the length of service;

for the payment of remuneration based on the results of the work for the year;

for the repair of fixed assets;

production costs preparatory work in seasonal industries;

forthcoming costs for land reclamation and other environmental protection measures;

forthcoming costs for the repair of rental items;

for warranty repair and warranty service;

coverage of other foreseen costs;

other similar reserves stipulated by regulatory enactments on accounting.

1. Accrued income.
2. Deferred tax assets and liabilities.
3. Provision to cover losses incurred as a result of financial and production activities.
4. Losses under construction contracts recognized prior to termination.

The presence of estimated values ​​in the financial (accounting) statements increases the risk of material misstatements.

In many cases, estimates are calculated using formulas and ratios applied by the auditee (for example, standard depreciation rates for a group of fixed assets; standard percentage of sales revenue to calculate the provision for future warranty repair and warranty costs of products for which a lifetime is established ).

Significant accounting estimates are generally reviewed and approved by the auditee's management. The auditor should check whether the accounting estimate has been reviewed and approved by the appropriate level of management, and whether the calculation is completed with appropriate documents.

The auditor can independently conduct or obtain from a third party an independent assessment and compare it with the estimated value calculated by the audited entity. When using an independent assessment, the auditor should ensure that the underlying data are reasonable, consider the necessary assumptions, and verify the calculation procedures. It is also advisable for the auditor to compare the estimates for previous periods with the actual results for these periods.

Estimated values ​​can be current and reported. The current estimated values ​​are reflected in the accounting accounts at the frequency with which the accounting registers are maintained, for example, the accrual of a reserve for the repair of fixed assets. The reported estimated values ​​are reflected only in the preparation of financial statements and are not determined until the end of the year, for example, the accrual of a provision for the depreciation of investments in securities.

The methods of calculating the estimated values ​​should be reflected in the accounting policies of the organization.

Guidance on auditing accounting estimates in the financial statements is contained in International Standard on Auditing 540 "Auditing Accounting Estimates" (hereinafter - ISA 540). This standard is not intended to be used in the verification of forward-looking information, but many of the procedures in the standard may be helpful. The concept of "estimated value" is interpreted in this standard briefly as an approximate amount of an item in the absence of precise measurement methods.

The section "Nature of Accounting Estimates" ISA 540 states that, depending on the calculation technique, estimates are divided into simple and complex. Simple estimates are calculated on the basis of a single calculation (for example, accumulation funds - as a fixed percentage of the profit earned; rents included in the costs of the reporting period - under the contract). Complex estimates are calculated based on several indicators using special forecasts (for example, estimating possible losses from a decrease in the value of inventories may require serious analysis of current data and forecasting sales volumes).

If, as a result of the uncertainty associated with Article balance sheet or the absence of objective data proves impossible to obtain reasonable estimates, the auditor should decide whether there is a need for modification audit report in accordance with ISA 700 "Auditor's Report (Opinion) on Financial Statements".

The Auditing Procedures section of that ISA specifies that the auditor should conduct an audit of accounting estimates to determine the reasonableness of accounting estimates and the extent to which they are disclosed.

When auditing estimates, you are encouraged to choose one of the following approaches, or a combination of them:

reviewing and testing the process used by management to derive estimates;

using an independent assessment to compare with that prepared by management;

a review of subsequent events that validate the estimates made.

An understanding of the procedures and methods used by the auditee in making accounting estimates is important to the auditor in planning the nature, timing and extent of audit procedures. At the same time, it is also necessary to analyze the organization of accounting and internal control at the audited facility.

The auditor's actions taken in general and detailed verification of the procedures used by the auditee should include:

evaluating the inputs and considering the assumptions on which the estimate is based;

arithmetic verification of calculations;

comparison of calculations in relation to previous periods with actual results for these periods;

consideration of procedures for approval of accounting estimates by the management of the audited entity.

Data evaluation and analysis of assumptions enable the auditor to establish the degree of accuracy, completeness and relevance of the data on which the estimate is based. In case of complex assessments using special methods, the auditor has the right to use the results of the work of experts, guided by ISA 620 "Using the Work of an Expert".

The nature, timing and extent of testing the calculation procedures used by an economic entity in an audit depends on the complexity of accounting estimates, an auditor's assessment of the procedures and methods used by the entity to obtain accounting estimates, and the materiality of those accounting estimates in the context of financial statements.

In the course of performing services for auditors, it is advisable to compare the estimates for previous periods with the actual results for the same periods, which will allow him to:

Obtain evidence of the overall robustness of the assessment procedures used by the subject;

consider the need to adjust the valuation formulas;

establish whether there is a need to make the appropriate adjustments and disclose the required information.

According to the section "Using an Independent Appraisal" of ISA 540, the auditing organization can obtain an independent appraisal and compare it with the estimated value calculated by the economic entity. As an independent assessment, the auditing organization may use the values ​​determined by third-party assessors. The auditor also has the right to independently evaluate the data, consider the prerequisites and apply the calculation procedures used in the formation of the estimated value. In addition, it may be helpful to compare estimates used in previous periods with actual results from those periods. for instance, the auditor can independently, based on the data available to him, predict the change in the price of securities. In this case, to check the provision for impairment of securities, he only needs to compare his forecast with the estimated value of this value contained in the financial statements.

In the section “Overview of Subsequent Events” in ISA 540, it is noted that in the case of applying the method of analyzing subsequent events that support the calculated estimate, the auditor can analyze the activities and events that occur after the end of the audited period, but before the end of the audit. Such subsequent events may provide audit evidence about the accounting estimates made by the entity. The analysis of such actions and events can reduce or even negate the need for analysis and verification of the procedures used by the economic operator to calculate estimates or use an independent estimate. for instance, the fall in the rate of securities can confirm the reliability of the reserve accrued by an economic entity last year.

In accordance with Evaluation of the Results of Audit Procedures in ISA 540, the auditor is required to make a final assessment of the reasonableness of accounting estimates based on knowledge of the client's business and the consistency of the estimate with other audit evidence obtained in the audit.

If there are differences between the estimated value determined by the audit organization on the basis of available audit evidence and a similar indicator reflected in the financial statements, then the audit organization decides whether it is necessary to make corrections to the reporting. If the difference is immaterial, for example, when the amount shown in the financial statements is within the acceptable range, correction may not be required.

If the firm considers the difference to be material, it may invite the entity's management to revise the accounting estimate. If the management of the economic entity refuses such a revision, then the difference will be considered an error and considered together with all other distortions when assessing the materiality of the impact on accounting statements.

The auditing organization also determines to what extent the differences in estimates of certain indicators recognized as significant are of a similar nature, as a result of which they, accumulating, can have a significant effect on the financial statements.

The auditor should also assess whether there is a general tendency to overestimate or underestimate certain amounts of differences, which could materially affect the reliability of the financial statements. In such cases, the auditor should evaluate the estimates collectively.

The full Russian analogue of ISA 540 is the Federal Rule (Standard) of Auditing Activity No. 21 "Peculiarities of Auditing Estimated Values". In accordance with it, if, as a result of uncertainty or lack of objective data, it is impossible to calculate adequate estimates, the auditor decides whether, on this basis, the auditor's report should be modified, drawn up in accordance with the federal rule (standard) of auditing activity No. 6 "Auditor's report on financial (accounting) reporting ".

Literature

1. Danilevsky Yu.A., Shapiguzov S.M., Remizov N.A., Starovoitova E.V. Audit. - M .: FBK-PRESS, 2002.
2. Melnik M.V., Kogdenko V.G. Audit methodology: development of new directions / Audit statements. - 2005. - N 10.
3. Podolsky V.I., Savin A.A. Audit. - M .: Economist, 2007.
4. Handbook of International Auditing, Assurance and Ethics Pronouncements. -N.Y., 2005.

B.T.Zharylgasova

Certified auditor,

Professor at the Department of Analysis and Audit

Russian state

agrarian correspondence university

V.Yu. Savin

Leading Specialist

group of companies "ALP Group"

International Standard on Auditing (ISA) 540 "Auditing Accounting Estimates, Including Evaluations fair value and related disclosures "should be read in conjunction with ISA 200, Essential Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing."

Introduction

Scope of this ISA

1. This International Standard on Auditing (ISA) specifies the auditor's responsibilities for auditing accounting estimates, including fair value estimates, and related financial statements. In particular, it clarifies in more detail the application of ISA 315 (Revised) and ISA 330, as well as other audit accounting estimates in ISA. It also provides requirements and guidance for identifying misstatements in individual accounting estimates and indicators of possible management bias.

ISA 315 (Revised) "Through Studying the Organization and Its Environment".

ISA 330, Audit Procedures Responsive to Assessed Risks.

Nature of Estimated Values

2. Some items of financial statements do not lend themselves to precise assessment, only a rough estimate is possible. For the purposes of this Standard, such items in the financial statements are hereinafter referred to as “accounting estimates”. The nature and reliability of the information that management can use to support accounting estimates varies significantly, which affects the degree of uncertainty associated with accounting estimates. The degree of estimation uncertainty, in turn, affects the risks of material misstatement in accounting estimates, including their sensitivity to management's unintentional or willful bias (see paragraphs A1 - A11).

3. The objectives of the accounting estimates may vary depending on the particulars of the applicable financial reporting framework and specific article financial reporting. Some estimates are calculated to predict the outcome (outcome) of one or more transactions, events or conditions that give rise to the need to calculate an estimate. The purpose of calculating other estimates, including many fair value measurements, is different, namely, to determine the value of a current transaction or line item in financial statements taking into account conditions that existed at the measurement date, such as the estimate of a particular type of asset or liability. For example, an applicable financial reporting framework may require a fair value measurement based on a notional hypothetical current transaction that occurs on market terms between knowledgeable interested parties (in some cases the term "market participants" or another equivalent term is used), rather than from settlements for a transaction at a certain past or future date.

Different definitions of fair value may be adopted in different financial reporting frameworks.

4. Any difference between the actual result of an accounting estimate and the amount initially recognized or disclosed in the financial statements does not necessarily represent a misstatement of the financial statements. This is especially true for fair value measurements, as any observable result will inevitably be influenced by events or conditions after the reporting date on which the measurement is made for financial reporting purposes.

Effective date

5. This ISA is effective for audits of financial statements for periods beginning on or after December 15, 2009.

Target

6. The objective of the auditor is to obtain sufficient appropriate audit evidence that:

(a) accounting estimates, including fair value estimates recognized or disclosed in the financial statements, are reasonable;

(b) the related disclosures in the financial statements are sufficient in the context of the applicable financial reporting framework.

Definitions

7. For purposes of the HKSAs, the following terms have the meanings attributed below:

(a) An estimate is an approximation of a monetary amount without precise means of calculating it. This term is used to indicate a quantity measured at fair value when there is uncertainty in the estimate, and also to indicate other quantities that require measurement. In cases where this standard for accounting estimates that imply fair value measurements only, the term "fair value measurements" is used;

(b) audit point estimate or range of estimates — the amount or range of values, therefore, calculated based on audit evidence for use in management's point estimate analysis;

(c) estimation uncertainty - the effect on the estimate and associated disclosures that the estimate is insufficient;

(d) management bias - lack of impartiality in management (lack of impartiality of management) in the process of preparing information;

(e) management's point estimate - the amount management has chosen to be recognized or disclosed in the financial statements as an estimate;

(f) the actual result of an accounting estimate is the actual monetary value derived from the underlying transactions, events or conditions that were considered in calculating the accounting estimate.

Requirements

Risk assessment procedures and related activities

8. When performing the procedures for risk assessment and related actions in ISA 315 (Revised) in order to form an understanding of the organization's activities and its environment, including the organization's internal control system, the auditor is required to analyze the following in order to obtain an understanding of identifying and assessing risks of material misstatement of accounting estimates (see paragraph A12):

ISA 315 (Revised), paragraphs 5-6 and 11-12.

(a) What are the requirements of the applicable financial reporting framework that are important to the accounting estimates, including related disclosures (see paragraphs A13 - A15);

(b) how management determines the transactions, events and conditions that may give rise to the recognition in the financial statements of accounting estimates or the disclosure of them in the financial statements. In gaining an understanding, the auditor shall ask management about changes in the circumstances of the business that may necessitate a new estimate or revision of an estimate (see paragraphs A16 - A21).

(c) how management estimates accounting estimates and the underlying underlying data, including (see paragraphs A22 - A23):

(i) what is the method, including, if applicable, the model used in making the accounting estimate (see paragraphs A24 - A26);

(ii) what are the significant controls (see paragraphs A27 - A28);

(iii) whether management has engaged an expert (see paragraphs A29 - A30);

(iv) what were the assumptions underlying the accounting estimates (see paragraphs A31 - A36);

(v) whether there has been, or should have been, a change from the prior period in the methods used to compute the accounting estimates; if so, why (see paragraph A37);

(vi) whether management has assessed the effect of the estimation uncertainty; if so, how (see paragraph A38).

9. The auditor is required to analyze the actual result of accounting estimates reflected in the financial statements of the previous period, or, if applicable, their subsequent revaluation for the purpose of preparing the financial statements for the current period. When determining the nature and extent of the analysis, the auditor takes into account the nature of the accounting estimates and the significance of the information obtained from the results of the analysis to identify and assess the risks of material misstatement of the accounting estimates included in financial statements the current period. However, the purpose of the analysis is not to call into question judgments made in prior periods based on information that existed at that time (see paragraphs A39 - A44).

Identifying and assessing the risks of material misstatement

10. In identifying and assessing the risks of material misstatement in accordance with the requirements of ISA 315 (Revised), the auditor is required to establish the degree of uncertainty associated with the accounting estimate (see paragraphs A45 - A46).

ISA 315 (Revised), paragraph 25.

11. The auditor is required to determine whether, in its professional judgment, any of the accounting estimates with a high degree of uncertainty will give rise to significant risks (see paragraphs A47 - A51).

Responses to the Assessed Risks of Material Misstatement

12. Based on the assessed risks of material misstatement, the auditor is required to determine (see paragraph A52):

(a) whether management has adequately followed the accounting requirements of the applicable financial reporting framework (see paragraphs A53 - A56);

(b) The methods for calculating the accounting estimates are appropriate and consistent, and whether changes, if any, in accounting estimates or in the way they are calculated from the prior period are reasonable in the circumstances. (Ref: Para.A57 - A58).

13. The auditor, in responding to the assessed risks of material misstatement in accordance with ISA 330, is required, subject to the nature of the accounting estimate, to do one or more of the following (see paragraphs A59 - A61):

ISA 330, paragraph 5.

(a) Determine whether events occurring prior to the date of the auditor's report provide audit evidence about accounting estimates. (Ref: Para.A62 - A67)

(b) verify how management has made the accounting estimates and the underlying data. In doing so, the auditor is required to assess (see paragraphs A68 - A70):

(i) whether the valuation technique used is appropriate in the circumstances (see paragraphs A71 - A76);

(ii) whether the assumptions used by management are appropriate for the measurement purposes in the applicable financial reporting framework (see paragraphs A77 - A83);

(c) while performing appropriate substantive procedures, test the operating effectiveness of controls over management's accounting estimates (see paragraphs A84 - A86);

(i) If the auditor uses assumptions or methods that differ from those used by management, the auditor is required to examine and understand management's assumptions or methods to the extent that it is sufficient to confirm that the auditor's point or range estimate reflects significant variables, and measure any material differences from management's point estimate (see paragraph A92);

(ii) if the auditor concludes that a range of estimates is appropriate, the auditor, based on the audit evidence obtained, narrows the range so that all results within the range can be considered reasonable. (Ref: Para.A93 - A95)

14. In considering the matters listed in paragraph 12 or responding to the assessed risks of material misstatement in accordance with paragraph 13, the auditor is required to determine whether specialized skill or knowledge of one or more aspects of accounting estimates is required to obtain sufficient appropriate audit evidence ( see paragraphs A96 - A101).

Additional substantive verification procedures to mitigate significant risks

Uncertainty in the estimate

15. For accounting estimates that involve significant risks, the auditor, in addition to performing additional substantive procedures in accordance with ISA 330, is required to assess (see paragraph A102):

ISA 330, paragraph 18.

(a) whether management considered alternative assumptions or results; for what reason it rejected them; What other steps management has taken to reduce the uncertainty in making accounting estimates (see paragraphs A103 - A106);

(b) whether significant assumptions made by management are reasonable (see paragraphs A107 - A109);

(c) when it is relevant to assessing the reasonableness of significant assumptions made by management or to comply with the requirements of the applicable financial reporting framework, assess management's intention and ability to implement specific plans of action (see paragraph A110).

16. If the auditor believes that management is not taking sufficient steps to mitigate the effects of uncertainty on estimates that involve significant risks, the auditor is required, if necessary, to calculate a range of estimates to assess the reasonableness of the estimate (see paragraphs A111 - A112).

Recognition and measurement criteria

17. For accounting estimates that involve significant risks, the auditor is required to obtain sufficient appropriate audit evidence that:

(a) management's decision to recognize or not recognize accounting estimates in the financial statements (see paragraphs A113 - A114);

(b) Management's chosen basis for making accounting estimates (Ref: Para.A115)

meet the requirements of the applicable financial reporting framework.

Determining the reasonableness of accounting estimates and identifying misstatements

18. The auditor is required to determine, based on audit evidence, whether accounting estimates in the financial statements are reasonable in the context of the applicable financial reporting framework or are misstated. (Ref: Para. A116 - A119)

19. The auditor is required to obtain sufficient appropriate audit evidence that the disclosures in the financial statements relating to the accounting estimates meet the requirements of the applicable financial reporting framework (see paragraphs A120 - A121).

20. For accounting estimates that involve significant risks, the auditor is also required to evaluate the adequacy of the financial statements disclosures about estimation uncertainty in the context of the requirements of the applicable financial reporting framework (see paragraphs A122 - A123).

Signs of possible management bias

21. The auditor is required to analyze the judgments and decisions made and made by management in making accounting estimates to identify signs of possible management bias. However, indications of possible management bias are not, in themselves, misstatements that need to be considered in drawing conclusions about the reasonableness of individual accounting estimates (see paragraphs A124 - A125).

Written statements

22. The auditor is required to obtain written representations from management and, where appropriate, those charged with governance in which they express their opinion on the reasonableness of significant assumptions used in making accounting estimates (see paragraphs A126 - A127).

Documentation

23. In the audit documentation, the auditor is obliged to reflect:

ISA 230 Audit Documentation - paragraphs 8-11 and A6.

(a) the basis for its conclusions about the reasonableness of accounting estimates that involve significant risks and the disclosures about them;

(b) indications of possible management bias, if any (see paragraph A128).

Application guidance and other explanatory material

Nature of Accounting Estimates (Ref: Para. 2)

A1. Due to the inherent uncertainty of business activities, some items in the financial statements can be estimated only approximately. In addition, some characteristics of the asset, liability or component of equity, or the basis or method of measurement prescribed by a particular financial reporting framework, may determine the need to measure the corresponding line of financial statements. Some financial reporting frameworks prescribe very specific methods for measuring and disclosing information in financial statements, while others are much less specific. The Appendix to this HKSA discusses fair value measurements and disclosures in various financial reporting frameworks.

A2. Some accounting estimates have relatively low uncertainty and may be associated with lower risks of material misstatement, for example:

estimates calculated by organizations, economic activity which is not difficult;

estimates that are calculated and updated frequently because they are routine;

estimates calculated using data from public sources, such as published interest rates or stock market quotes. Such data may be referred to as “observable” for the purpose of measuring fair value;

fair value measurements, the method of calculation for which is prescribed by the applicable financial reporting framework, are simple and easy to apply to the asset or liability that is required to be measured at fair value;

fair value measurements with a model that is well known or generally accepted, provided that it involves the use of assumptions or observable inputs.

A3. Relatively high uncertainty may be inherent in other estimates, especially if they are based on significant assumptions, for example:

estimated values ​​concerning the outcome of unfinished litigation;

estimates of the fair value of derivatives financial instruments not traded on the exchange;

fair value estimates using an entity's own model or assumptions or non-observable inputs.

A4. The degree of estimation uncertainty varies depending on the nature of the estimate, the extent to which the generally accepted method or model has been used to calculate it, and the subjectivity of the assumptions used to do so. In some cases, the uncertainty surrounding an accounting estimate may be so high that the recognition criteria in the applicable financial reporting framework are not met and an accounting estimate cannot be obtained.

A5. Not all items in the financial statements requiring measurement at fair value are characterized by measurement uncertainty. For example, this may be the case when there is an active and open market for certain items in the financial statements that provides publicly available and reliable information about the prices at which the actual transactions take place. In such cases, published quotations are usually the best audit evidence of fair value. However, estimation uncertainty can exist even if the estimation method and data are very well defined. For example, it may be necessary to adjust the valuation of securities quoted in an active and open market at their declared market value if the holding of such securities appears to be significant in terms of market size or the liquidity of such securities is limited. In addition, general economic factors that exist at the time of calculation, for example, lack of liquidity in a particular market, can affect the estimation uncertainty.

A6. Additional examples of situations where accounting estimates other than fair value measurements may be required:

doubtful debt reserve;

obsolescence of stocks;

warranty obligations;

the depreciation method or useful life of the asset;

reduction amount book value investments in cases where there is uncertainty about its recovery;

the result of the fulfillment of long-term contracts;

costs for the settlement of legal proceedings and the execution of court decisions.

A7. Additional examples of situations where the calculation of fair value measurements may be required:

complex financial instruments that are not traded in an active and open market;

share-based payments;

property or equipment intended for disposal;

individual assets or liabilities acquired in a business combination, including goodwill and;

transactions involving the exchange of assets or liabilities between arm's length parties without monetary satisfaction, for example, an exchange production equipment between divisions engaged in different spheres of activity, which does not provide for settlements in cash.

A8. Valuation involves the use of judgments based on information that was available at the time the financial statements were prepared. Judgments made about many accounting estimates involve the formation of assumptions about matters that are uncertain at the time of the estimate. The auditor is not responsible for predicting future conditions, transactions or events that, if known at the time of the audit, could materially influence management's actions or assumptions.

Leadership bias

A9. Often, financial reporting frameworks require management to be impartial, that is, to act without bias. However, since accounting estimates are imprecise, they are potentially influenced by management judgment. Such judgments may be characterized by unintentional or, conversely, willful bias of management (for example, due to the fact that management wants to achieve the desired result). The susceptibility of the estimate to the influence of management bias increases as the subjectivity increases in the course of its calculation. Inadvertent and potentially intentional management bias invariably accompanies the judgments that are often required in the calculation of accounting estimates. In a recurring audit, signs of possible management bias identified during the audit in previous periods influence the auditor's planning and actions to identify and assess risks in the current period.

A10. Identifying management bias at the account level can be challenging. Bias can only be detected by looking at aggregated groups of estimates or all estimates, or by observing them over multiple reporting periods. While management bias always accompanies subjective decisions to one degree or another, management may not intend to mislead users of the financial statements in judging. However, if such intent is present, management bias qualifies as fraudulent action.

Features of public sector organizations

A11. Public sector entities may hold significant amounts of specialized assets for which there is no publicly available and reliable source of information for fair value measurement purposes, or other basis for determining present value, or both. Often, specialized assets owned by organizations do not generate cash flows, and there is no active market for them. For this reason, fair value measurements are usually computationally intensive and can be difficult and, in rare cases, impossible.

Risk Assessment Procedures and Related Actions (Ref: Para. 8)

A12. The risk assessment procedures and related activities in paragraph 8 assist the auditor in establishing the expected nature and type of accounting estimates that might be used by the entity. The main task of the auditor is to understand whether the understanding obtained by him about the activities of the organization is sufficient to identify and assess the risks of material misstatement of accounting estimates, as well as to plan the nature, timing and extent of further audit procedures.

Obtaining an Understanding of the Requirements of the Applicable Financial Reporting Framework (Ref: Para. 8 (a))

A13. Understanding the requirements of the applicable financial reporting framework helps the auditor to determine, in particular:

• Whether it provides for specific conditions for the recognition of accounting estimates or methods for their determination;

Most financial reporting frameworks require the inclusion of a balance sheet or line item that meets the recognition criteria. Disclosure of Principles accounting policies or the additional notes to the financial statements are not intended to serve as a complete substitute for unrecognized items, including accounting estimates.

Whether specific conditions have been identified that permit or require measurement at fair value, for example, taking into account management's intentions to implement a specific course of action for an asset or liability;

Whether the required or permitted disclosures have been identified.

After examining these matters, the auditor will gain an understanding that he uses to discuss with management whether the latter is complying with the accounting estimates and to decide that such requirements are being met.

A14. Financial reporting frameworks may provide guidance to guide the preparation of point estimates where multiple alternatives exist. For example, some financial reporting frameworks require that the point estimate selected as one of the alternatives reflects management's judgment on the most likely outcome (outcome). Others may require the use of a probability-weighted discounted expected value. In some cases, management is able to calculate a point estimate immediately, while in others, a reliable point estimate is only possible after examining several alternative assumptions or results that enable management to calculate a point estimate.

Different financial reporting frameworks may use different terms to describe the point estimates thus calculated.

A15. Financial reporting frameworks may require disclosures about significant assumptions to which a particular accounting estimate is particularly sensitive. In addition, when there is a high degree of estimation uncertainty, some financial reporting frameworks prohibit the recognition of accounting estimates, but may require certain disclosures in the notes to the financial statements.

Obtaining an Understanding of How Management Determines Whether Accounting Estimates Are Required (Ref: Para. 8 (b))

A16. The preparation of the financial statements requires management to determine whether a transaction, event or condition necessitates an accounting estimate and whether all required accounting estimates have been recognized, determined and disclosed in the financial statements in accordance with the requirements of the applicable financial reporting framework.

A17. The transactions, events and conditions requiring the calculation of accounting estimates are generally determined by management on the basis of:

their understanding of the organization and the industry in which it operates;

information that it has in relation to the implementation of the business strategy in the current period;

if applicable, experience gained in preparing the entity's financial statements in previous periods.

In such cases, the auditor can understand how management is determining the need for accounting estimates, principally by making inquiries with management. In other cases where management adopts a more structured approach, such as when the entity has formally established a risk management unit, the auditor may perform risk assessment procedures in relation to the methods and practices used by management to regularly review the circumstances that give rise to the need to calculate estimates and, if required, revisions. The issue of completeness of accounting estimates often requires particular attention from the auditor, especially when it comes to accounting estimates that relate to liabilities.

A18. The auditor's understanding of the entity and its environment from risk assessment procedures, along with other audit evidence gathered during the audit, helps the auditor to identify circumstances or changes in circumstances that may necessitate an accounting estimate.

A19. Change requests to management may include, for example, the following questions:

Has the entity conducted new types of transactions for which accounting estimates are required?

Whether the terms of the transactions that require accounting have changed;

Whether the accounting policy for accounting estimates has changed as a result of changes in the requirements of the applicable financial reporting framework or for any other reason.

Whether there have been changes in regulatory requirements or any other changes beyond management's control that may require management to revise estimates that have already been made or to calculate new ones;

whether new conditions have occurred (whether new events have occurred), in connection with which it became necessary to calculate new or revise the already calculated estimates.

A20. During the audit, the auditor may discover transactions, events and conditions not identified by management that require accounting estimates. ISA 315 (Revised) addresses the circumstances in which the auditor detects risks of material misstatement not identified by management and determines whether there are material deficiencies in the entity's internal control with respect to risk assessment processes.

ISA 315 (Revised), paragraph 16.

Features of small organizations

A21. The study of this information when auditing small organizations is associated with less difficulties, since their economic activities are often limited in nature, and their operations are less complex in structure. In addition, the need for an estimate is often determined by only one person, for example, the owner-manager, to whom the auditor can make inquiries.

Obtaining an Understanding of How Management Calculates Accounting Estimates (Ref: Para. 8 (c))

A22. The preparation of the financial statements also requires management to implement accounting accounting processes, including satisfactory internal controls. These processes include:

selection of appropriate accounting policies and determination of valuation procedures, including appropriate calculation and valuation methods and, if necessary, model selection;

Preparing or identifying significant data and assumptions that affect accounting estimates;

regularly reviewing the circumstances surrounding the need for accounting estimates and, if necessary, revising accounting estimates.

A23. Matters that the auditor may consider to understand how management has calculated the accounting estimates may include, for example:

What are the types of accounts or transactions to which the estimates relate (for example, are the estimates related to accounting for routine or recurring transactions, or are they related to atypical or one-off transactions);

Whether management has used recognized calculation methods to make specific accounting estimates, and if so, how;

Whether estimates were calculated using data that existed at an interim date, and if so, has management considered the impact of events, transactions and changes in circumstances between that interim date and the end of the period, and if so, how.

Accounting Estimates Method, Including Use of Models (Ref: Para. 8 (c) (i))

A24. In some cases, the applicable financial reporting framework may prescribe a particular method for calculating accounting estimates, for example, a particular model that should be used to calculate the fair value measurement. However, in most cases, the applicable financial reporting framework does not prescribe a specific method of calculation, or it may provide for several alternative methods at once.

A25. In situations where the applicable financial reporting framework does not prescribe a specific method to be applied in the circumstances, issues that the auditor might consider in studying a method or, where applicable, accounting models, include, for example:

How management considered the nature of the asset or liability being measured in selecting a particular method;

Does the organization operate in a specific area, industry, or in a special environment in which generally accepted methods are used to compute certain accounting estimates.

A26. If management independently develops a model to be used to calculate an estimate, or deviates from a model that is widely used in a particular industry or in a particular environment, the risks of material misstatement increase.

Relevant Controls (Ref: Para. 8 (c) (ii))

A27. Factors that the auditor can examine to obtain an understanding of significant controls include, for example, the qualifications of those making the accounting estimates, and controls over:

how management determines the completeness, significance and accuracy of the data used in calculating the accounting estimates;

How the accounting estimates (including assumptions or inputs used to calculate them) are reviewed and approved by management at the appropriate levels and, where appropriate, by those charged with governance.

how responsibilities are allocated between those who conduct transactions on behalf of the organization and those responsible for the calculation of accounting estimates, including whether the allocation of responsibilities takes into account the nature of the organization's activities and the products or services provided (for example, in a large financial institution the division of responsibilities may include the creation of an independent unit that will be responsible for evaluating and confirming the fair value of the entity's own financial products and employing individuals whose remuneration will not be tied to such products).

A28. Other controls may be used in the calculation of accounting estimates, depending on the circumstances. For example, if an entity uses specific models to calculate accounting estimates, management may establish policies and procedures that would govern the application of those models. Significant funds controls can include, for example, control over the following aspects:

structure and development or selection of a specific model to achieve a specific goal;

use of the model;

maintaining and regularly confirming the integrity of the model.

Management Engaged in Experts (Ref: Para. 8 (c) (iii))

A29. Management may employ, or the organization may employ, individuals who have the experience and qualifications necessary to calculate the required point estimates. However, in some cases, management may need to engage an expert to calculate or assist in the calculation of point estimates. Such a need may arise due to the following circumstances:

the specialized nature of the issue requiring assessment (for example, the assessment of mineral or hydrocarbon reserves in the extractive industries);

Technical features of the models that are designed to comply with the relevant requirements of the applicable financial reporting framework (for example, some fair value measurements);

the unusual or rare nature of the condition, transaction, or event requiring an accounting estimate.

Features of small organizations

A30. In small organizations, the owner-manager is able to calculate the required point estimate himself. However, in some cases, he may need the help of an expert. Discussing with the owner manager early in the audit the nature of any accounting estimates, the completeness of the required accounting estimates, and the adequacy of the valuation process can help the owner manager determine if he needs expert assistance.

Assumptions (Ref: Para. 8 (c) (iv))

A31. Assumptions are integral components of accounting estimates. Matters that the auditor may study to obtain an understanding of the assumptions underlying the accounting estimates include, for example:

What are the nature of the assumptions, including which ones might be significant;

How management evaluates the reasonableness and completeness of the assumptions (that is, whether all significant variables have been taken into account);

if applicable, how management determines the internal consistency of the assumptions used;

Whether the assumptions relate to matters that are within management's control (for example, assumptions about service programs that may affect the estimate of the asset's useful life) and are consistent with the business plans of the entity and its environment, or whether the assumptions relate to matters that outside the control of management (for example, assumptions about interest rates, mortality rates, potential legal or regulatory action, variability and timing of future cash flows);

what is the nature and extent of documentation (if any) supporting the assumptions.

An expert can form or identify assumptions that will assist management in making estimates. If management uses assumptions that have been generated or identified by the expert, they become management's assumptions.

A32. In some cases, assumptions can be attributed to inputs, such as when management uses a model to calculate the estimate, although the term “inputs” can also refer to the underlying data to which specific assumptions are applied.

A33. Management may use different types information obtained from internal and external sources, the significance and reliability of which may be different. In some cases, information from external sources (for example, published interest rates or other statistical information) or internal sources (for example, information from the previous period or about the previous conditions in which the entity operated) may provide a reliable basis for making an assumption. In other cases, the assumption can be more subjective, for example, when the organization does not have the necessary experience or there are no external sources of information.

A34. In assessing fair value, assumptions take into account data or data that would be used by knowledgeable and interested independent parties (in some cases, the term "market participants" or another equivalent term is used for their designation) to determine fair value in an asset exchange or settlement of this or that obligation. Certain assumptions may also differ depending on the nature of the asset or liability being measured, the valuation technique used (for example, comparable or market method) and the requirements of the applicable financial reporting framework.

A35. The assumptions or inputs used in estimating fair value show the following differences in terms of source and rationale:

(a) the assumptions and inputs that market participants would use to price the asset or liability based on market data that have been obtained from sources that are independent of the reporting entity (in some cases, the term observable parameters "or another equivalent term);

(b) assumptions and inputs that reflect management's own judgment about the assumptions that market participants would use to price the asset or liability, based on the best information available under the circumstances (in some cases, the term " unobservable inputs "or another equivalent term).

In practice, however, the differences between the assumptions and assumptions described in (a) and (b) are not always obvious. Moreover, management may need to choose from several different assumptions used by different market participants.

A36. The degree of subjectivity, for example in determining whether an assumption or an input is observable, affects the degree of estimation uncertainty and, therefore, the auditor's assessment of the risks of material misstatement of a particular estimate.

Changes in Accounting Accounting Methods (Ref: Para. 8 (c) (v))

A37. When assessing how management calculates accounting estimates, the auditor is required to determine whether there has been (or should have been) any change in the way they are calculated from the prior period. If there have been any changes in the environment or circumstances that affect the entity's operations or the requirements of the applicable financial reporting framework, the measurement method adopted may need to be changed. If management changes the way in which an accounting estimate is made, it is necessary that it has been able to confirm that the new method is more reasonable in the new circumstances, or is a response to those changes. For example, if management changes the basis for making an accounting estimate and uses a model instead of using a valuation method based on current market prices, the auditor should perform a critical assessment and determine whether management's market assumptions are reasonable in the current economic circumstances.

Estimation Uncertainty (Ref: Para. 8 (c) (vi))

A38. Matters that the auditor may consider to gain an understanding of whether management has assessed the effect of estimation uncertainty and, if so, how, may be, for example:

Whether management has considered alternative assumptions or outcomes (of events) by, for example, performing a sensitivity analysis to determine the effect of changes in assumptions on an accounting estimate and, if so, how;

How management calculates an estimate when the analysis suggests multiple scenarios for the outcome of events;

Whether management monitors the actual results of the accounting estimates calculated in the previous period, and whether management has taken appropriate action based on the results of the monitoring.

Analysis of Previous Period Accounting Estimates (Ref: Para. 9)

A39. The actual result of an accounting estimate often differs from the accounting estimate recognized in the financial statements of the previous period. Based on the results of performing risk assessment procedures in order to establish and understand the reasons for such differences, the auditor may obtain:

Information about the effectiveness of the management's process of calculating estimates in the previous period, on the basis of which the auditor can judge the likely effectiveness of a similar process in the current period;

audit evidence relating to the revaluation of previous period accounting estimates in the current period;

audit evidence about matters such as measurement uncertainty that may need to be disclosed in the financial statements.

A40. An analysis of prior period accounting estimates can also assist the auditor in identifying circumstances or conditions in the current period that increase the sensitivity of accounting estimates to possible management bias or indicate its existence. Professional skepticism will help the auditor to identify such circumstances or conditions and to determine the nature, timing and extent of additional audit procedures.

A41. ISA 240 also requires a retrospective review of management's judgments and assumptions relating to significant accounting estimates. This review is performed in response to the risk of management bypassing existing controls and is part of the auditor's process for developing and performing audit procedures to check accounting estimates for signs of bias that could be associated with a risk of material misstatement due to fraud. In practice, the auditor's analysis of prior period estimates as part of a risk assessment procedure in accordance with this SSA may be conducted concurrently with the audit required by SSA 240.

ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements - paragraph 32 (b) (ii).

A42. The auditor may conclude that it is necessary to analyze in more detail those accounting estimates that, during the audit in the previous period, were determined to have high uncertainty, or those in which there have been significant changes from the previous period. On the other hand, in relation to, for example, estimates generated in the course of accounting for routine and repetitive transactions, the auditor may conclude that, for the purposes of the analysis, it will be sufficient to perform analytical procedures as risk assessment procedures.

A43. Fair value estimates and other estimates based on conditions prevailing at the date of determination may have a greater amount of difference between the fair value recognized in the prior period financial statements and the result or amount revalued for the purposes of calculating the current period financial statements. The reason is that the purpose of calculating such estimates is determined by the idea of ​​value at a particular moment, but with a change in the conditions in which the organization operates, this value can change significantly and quickly. Therefore, in the analysis, the auditor should focus on obtaining information that is useful in identifying and assessing the risks of material misstatement. For example, in some cases, understanding changes in the assumptions of a market participant that influenced the actual result of the fair value measurement in the previous period may not provide the information needed for audit purposes. In such a case, the auditor's examination of the actual results of the fair value measurement in the prior period may be to a greater extent is aimed at examining the effectiveness of management's process for calculating estimates in the previous period, that is, the actions of management by which the auditor will be able to form a judgment about the likely effectiveness of the process of calculating management's estimates in the current period.

A44. Any difference between the actual result of an accounting estimate and the amount that was recognized in the prior period financial statements does not necessarily indicate a misstatement in the prior period financial statements. However, it could be indicative of misstatement if, for example, the difference relates to information that was available to management at the time the financial statements of the prior period were completed or that could reasonably have been obtained and taken into account in preparing those financial statements. Many financial reporting frameworks provide guidance on how to distinguish changes in accounting estimates that are misstatements from changes that are not, and guidance on how to account for them.

Identifying and assessing the risks of material misstatement

Estimation Uncertainty (Ref: Para. 10)

A45. The degree of uncertainty inherent in a particular accounting estimate can be attributed to the following factors:

the degree to which the estimated value is dependent on judgment;

the sensitivity of the estimate to changes in assumptions;

The existence of recognized valuation techniques that can reduce valuation uncertainty (although the subjective nature of the assumptions used as inputs can still lead to valuation uncertainty);

the duration of the forecasting period and the possibility of using data on the events of the previous period to predict the events of the future period;

the ability to obtain reliable data from external sources;

the volume in which the estimate is based on observable or non-observable inputs.

The sensitivity of an accounting estimate to management bias may be affected by the degree of uncertainty in that accounting estimate.

A46. In assessing the risks of material misstatement, the auditor may also consider the following factors:

the actual or expected value of the estimated value;

The reported amount of the accounting estimate (that is, management's point estimate) and the amount that the auditor should have reflected;

involvement of an expert by the management to calculate the estimated value;

the results of the analysis of the estimates of the previous period.

High Estimation Uncertainty and Significant Risks (Ref: Para. 11)

A47. Examples of estimates with a high degree of uncertainty are:

Estimates that depend heavily on judgments, such as judgments about the outcome of pending legal proceedings or judgments about the amount and timing of future cash flows associated with uncertain events many years from now.

estimates calculated without using recognized calculation methods;

Accounting estimates for which the auditor's analysis of similar accounting estimates in the prior period's financial statements indicates a significant difference between the original accounting estimate and its actual result.

Fair value measurements that use an entity's own model or for which no observable inputs are available.

A48. An apparently immaterial accounting estimate could lead to material misstatement due to the inherent uncertainty of that accounting estimate, that is, the amount recognized or disclosed in the financial statements in relation to an accounting estimate may not indicate its uncertainty.

A49. In some cases, the level of estimation uncertainty can be so high that it is impossible to calculate a reasonable estimate. Therefore, the applicable financial reporting framework may prohibit the recognition of the related line item in the financial statements or its measurement at fair value. In such situations, significant risks are associated not only with the need to recognize or not recognize an accounting estimate or measure it at fair value, but also with the adequacy of the disclosed information. The applicable financial reporting framework may require disclosures about such accounting estimates and their inherent high levels of uncertainty (see paragraphs A120 - A123).

A50. If the auditor determines that an accounting estimate poses a threat of significant risk, the auditor is required to obtain an understanding of the entity's controls, including the controls being performed.

ISA 315 (Revised), paragraph 29.

A51. In some cases, accounting uncertainty may cast doubt on the entity's ability to continue as a going concern. ISA 570 provides requirements and guidance for such situations.

ISA 570 Going Concern.

Responses to Assessed Risks of Material Misstatement (Ref: Para. 12)

A52. ISA 330 requires the auditor to design and perform audit procedures, the nature, timing and extent of which will help reduce the assessed risks of material misstatement associated with accounting estimates, both at the financial statement and assertion levels. Paragraphs A53 - A115 address specific responses to risks at the assertion level only.

ISA 330, paragraphs 5-6.

Compliance with the Requirements of the Applicable Financial Reporting Framework (Ref: Para. 12 (a))

A53. Many financial reporting frameworks define specific conditions for the recognition of accounting estimates, methods for calculating them and information that is subject to mandatory disclosure. Compliance with these types of requirements can be difficult and involve the formation of judgments. Once the risk assessment procedures have been performed, the auditor focuses on those requirements of the applicable financial reporting framework that are subject to a risk of error or which may have different interpretations.

A54. The fact of proper compliance by management with the requirements of the applicable financial reporting framework is established, inter alia, taking into account the auditor's understanding of the organization and its environment. For example, measuring the fair value of specific items, such as intangible assets acquired in a business combination, may include examining specific aspects that are influenced by the entity's specifics and operations.

A55. In some cases, additional audit procedures, such as the auditor's review of the current physical condition of the asset, may be required to demonstrate that management has adequately met the requirements of the applicable financial reporting framework.

A56. Compliance with the applicable financial reporting framework requires management to consider changes in conditions or circumstances that affect the entity. For example, the emergence of an active market for a particular type of assets or liabilities may make it inappropriate to continue using the discounted cash flow method to measure their fair value.

Consistency of Methods and the Basis for Changes (Ref: Para. 12 (b))

A57. The auditor's study of a change in an accounting estimate or method of calculation from a prior period is important because a change that is not based on changed circumstances or new information is considered subjective. Subjective changes in accounting estimates over time lead to inconsistent financial statements and may give rise to misstatements or an indicator of possible management bias.

A58. In many cases, management is able to justify changes in accounting estimates or the way in which they were calculated from the prior period for a change in circumstances. The reasonableness of the reasons for the change and the sufficiency of documents supporting management's opinion about the change in circumstances that caused the change in the accounting estimate or the way in which it was calculated are assessed on the basis of judgment.

Responses to Assessed Risks of Material Misstatement (Ref: Para. 13)

A59. The auditor decides on the choices in paragraph 13 to respond to the risks of material misstatement, both individually and collectively, taking into account the following factors:

the nature of the accounting estimate, including whether it relates to routine or atypical transactions;

the auditor's ability to obtain sufficient appropriate audit evidence from the results of the procedure (s);

The assessed risk of material misstatement, including whether the assessed risk is significant.

A60. For example, when assessing the adequacy of the amount of the allowance for doubtful debts, an effective audit procedure, along with other procedures, may be the verification of subsequently collected Money... Where the level of uncertainty in an accounting estimate is high, for example when the estimate was calculated using the entity's own model and unobservable inputs, multiple responses to the assessed risks may be required to obtain sufficient appropriate audit evidence. (Ref: Para. thirteen).

A61. In addition, the circumstances in which each measure may be appropriate are clarified in paragraphs A62 - A95.

Events Prior to the Date of the Auditor's Report (Ref: Para. 13 (a))

A62. Determining whether events occurring prior to the date of the auditor's report provide audit evidence about accounting estimates can be an effective response if such events are expected to:

will happen;

Provide audit evidence that either confirms or refutes the accounting estimate.

A63. Events prior to the date of the auditor's report may, in some cases, provide sufficient appropriate audit evidence about an accounting estimate. For example, the sale of all stocks of obsolete products immediately after the end of the period may provide audit evidence about the estimated net realizable value of such stocks. In such cases, if sufficient appropriate evidence is obtained about the relevant events, it may not be necessary to perform additional audit procedures.

A64. In other cases, events prior to the date of the auditor's report may not provide audit evidence about accounting estimates. For example, conditions or events to which individual accounting estimates relate develop over an extended period of time. In addition, given the objective of a fair value measurement, information available after the end of the period may not reflect events or circumstances that existed at the balance sheet date and, therefore, may not be suitable for use in measuring fair value. Other responses to the risks of material misstatement that the auditor can take are listed in paragraph 13.

A65. In some cases, events that invalidate an accounting estimate may indicate ineffectiveness in management's calculation of accounting estimates or management bias in its calculation.

A66. Even if the auditor chooses not to apply this approach to specific accounting estimates, the auditor is nevertheless required to comply with the requirements of ISA 560. The auditor is required to perform audit procedures to obtain sufficient appropriate audit evidence that all events occurring between the financial statements and the date of the auditor's report and requiring adjustments to the financial statements or disclosure of information therein are identified and properly reflected in the financial statements. Since many accounting estimates, other than fair value estimates, generally depend on the outcome (outcome) of future conditions, transactions or events, the auditor's compliance with the requirements of ISA 560 is of particular importance.

ISA 560, Events after the Balance Sheet Date.

ISA 560, paragraph 6.

ISA 560, paragraph 8.

Features of small organizations

A67. If there is a longer period of time between the date of the balance sheet and the date of the auditor's report, analyzing the events of that period can be an effective means of verifying estimates other than fair value estimates. This situation is most typical for small organizations, which are managed by their owners, especially if they do not have formal procedures to control the calculation of estimates.

Reviewing Management's Estimation of Accounting Estimates (Ref: Para. 13 (b))

A68. If an accounting estimate is a fair value estimate that is based on a model that uses observable and unobservable inputs, it may be effective to test management's process of making estimates and the data from which those estimates are derived. Testing may also be appropriate, for example, in the following cases:

the estimated value is obtained through standard data processing in the organization's accounting system;

The auditor's analysis of similar accounting estimates in the prior period's financial statements suggests that management's process for calculating those estimates in the current period is likely to be effective.

the estimate has been compiled using a large population of similar items, each of which is not individually significant.

A69. Testing management's calculation of an estimate may, for example, include:

testing the accuracy, completeness and significance of the data on the basis of which the estimates are calculated, and the correctness of the estimates calculated using such data and management assumptions;

Examining the source, relevance and reliability of external data or information, including data or information obtained from external experts that management has engaged to assist in the calculation of the estimates;

recalculation of the estimated value and examination of information about it in order to ascertain its internal consistency;

examining the processes for reviewing and approving assessments by management.

Features of small organizations

A70. Unlike larger organizations, small organizations have a less structured process for calculating estimates. Small organizations, in which their management is actively involved, may lack detailed descriptions of accounting procedures and complex accounting records or written policies. But even if the process is not formalized, this does not mean that the organization's management is not able to provide the auditor with the basic data to verify the estimated value.

Analysis of the Valuation Method (Ref: Para. 13 (b) (i))

A71. Unless the applicable financial reporting framework prescribes a particular method of making accounting estimates, it is a matter of professional judgment in the circumstances to assess the appropriateness and reasonableness of the method used, including any model used.

A72. Matters that the auditor might consider in making such an assessment include, for example:

Whether management's choice of a valuation method is reasonable;

In choosing this method, whether management has sufficiently and fully complied with the criteria, if any, in the applicable financial reporting framework.

Whether the method chosen is appropriate and reasonable in terms of the nature of the asset or liability being measured and the requirements of the applicable financial reporting framework related to accounting estimates.

whether the chosen method is appropriate and reasonable in terms of the type of activity, industry and environment of the organization.

A73. In some cases, management may conclude that the use of different methods could result in significantly different estimates. In such cases, examining how the organization has investigated the reasons for such differences can help the auditor assess the appropriateness and reasonableness of the method chosen.

Assessing the use of models

A74. In some cases, especially when calculating fair value measurements, management may use a model. The appropriateness and reasonableness of the model used in the circumstances may depend on a number of factors, such as the specifics of the organization's activities and its environment, as well as the industry in which it operates and the characteristics of the asset or liability being measured.

A75. The importance of the factors listed below will depend on the circumstances, including whether the entity is applying a model that is used in a particular sector or industry, or a model that was developed in-house. In some cases, the organization may use an expert to develop and test the model.

A76. The auditor may also consider a number of issues when testing the model, depending on the circumstances:

whether the model has been tested for its suitability prior to use, and whether checks are carried out regularly to confirm its suitability for future use. The suitability verification process may include assessing:

theoretical validity and mathematical integrity of the model, including the validity of the model parameters;

completeness of the initial parameters of the model and their compliance with market practice;

the result of applying the model in comparison with the results of actual operations;

are there appropriate change control rules and procedures;

Whether the model is periodically surveyed, tuned and tested to determine its suitability, especially if the input parameters used are subjective;

adjustments are made to the results of the model, including in measuring fair value; whether those adjustments reflect assumptions that market participants would use in similar circumstances;

Is there sufficient documentation of the model, including a description of its scope and limitations, its key parameters, required inputs and the results of any validation tests performed?

Assumptions Used by Management (Ref: Para. 13 (b) (ii))

A77. The auditor evaluates management's assumptions only on the basis of information available to the auditor at the time of the audit. Auditing procedures on management's assumptions are performed for the purpose of auditing an entity's financial statements, but not for the purpose of expressing an opinion on those assumptions.

A78. Matters that the auditor may consider in assessing the reasonableness of management's assumptions include, for example:

the validity of individual assumptions;

interconnectedness and internal consistency of assumptions;

The reasonableness of the assumptions when considered together or when considered in conjunction with other assumptions in relation to a particular accounting estimate or other accounting estimates;

For fair value measurements, whether the assumptions of management adequately reflect the observable assumptions of market participants.

A79. The assumptions on which estimates are based may reflect management's expectations of the performance of specific objectives and specific strategies. In such cases, the auditor may perform audit procedures to evaluate the reasonableness of those assumptions and to understand, for example, whether the assumptions are consistent with factors such as:

general economic situation and economic circumstances of the organization;

organization plans;

assumptions made in previous periods (if applicable);

the practical experience or conditions in which the entity has operated in previous periods, to the extent that such historical information can be considered representative of future conditions or events;

other assumptions used by management related to the financial statements.

A80. The reasonableness of the assumptions used may depend on the intentions of management and its ability to implement a specific course of action. In many cases, management documents the plans and intentions associated with specific assets or liabilities (such requirements may be included in the financial reporting framework). Although it is a matter of professional judgment, the auditor is still able to perform the following procedures to determine the extent of audit evidence to be obtained about management's intention and ability to implement a particular course of action:

studying the process and results of the implementation of the declared intentions by the management in the past periods;

review of written plans and other documentation, including, if applicable, officially approved budgets, approvals or minutes of meetings;

requesting management to clarify the reasons why a specific action plan was selected;

analysis of events that occurred between the date of the financial statements and the date of the auditor's report;

an assessment of the organization's ability to implement a specific plan of action in the economic circumstances in which it operates, including the effect of its existing obligations.

However, some financial reporting frameworks may prohibit management's intentions or plans from being taken into account when making an accounting estimate. This situation often arises in relation to fair value measurements because the purpose of their calculation is to take into account the assumptions used by market participants.

A81. In addition to the requests mentioned above, in assessing the reasonableness of the assumptions used by management on the basis of which the fair value estimates are derived, the auditor may consider the following aspects, if necessary:

If applicable, has management considered specific market assumptions in making assumptions and, if so, how?

Are the assumptions consistent with observable market conditions and the characteristics of the asset or liability measured at fair value?

if applicable, has management reviewed the assumptions or information about comparable transactions, assets or liabilities and, if so, how.

A82. Fair value estimates can be calculated using both observable and unobservable inputs. If fair value estimates are calculated using unobservable inputs, the auditor may consider, for example, how management confirms that:

how the characteristics of market participants that are significant for calculating the estimated values ​​were determined;

What are the changes that management has made to its assumptions in order to express its own views on the assumptions used by market participants;

whether management took into account the best information available to them under the circumstances;

if applicable, how comparable transactions, assets and liabilities are accounted for in management's assumptions.

Using inputs that are not observable increases the likelihood that the assessment of assumptions will need to be combined with other responses to the assessed risks in order to obtain sufficient appropriate audit evidence (described in paragraph 13). In such cases, the auditor may need to perform other audit procedures, for example, reviewing the documentation that the accounting estimate has been reviewed and approved by appropriate level management and, where appropriate, those charged with governance.

A83. In assessing the reasonableness of the assumptions from which an estimate has been derived, the auditor may identify one or more significant assumptions that may indicate a high degree of uncertainty in the estimate and, therefore, a significant risk. Additional responses to significant risks are listed in paragraphs A102 - A115.

Testing the Operating Effectiveness of Controls (Ref: Para. 13 (c))

A84. Testing the operating effectiveness of controls over management's calculation of accounting estimates can be an effective response if the design, implementation and support of management's process is well established and maintained, for example:

Controls are in place for the review and approval of accounting estimates by an appropriate level of management and, where appropriate, by those charged with governance.

the estimated value is obtained through standard data processing in the organization's accounting system.

A85. Operational effectiveness testing of controls is required when:

(a) The auditor's assessment of the risks of material misstatement at the assertion level reflects an expectation that process controls are operating effectively, or

(b) Substantive procedures alone do not provide sufficient appropriate audit evidence at the assertion level.

ISA 330, paragraph 8.

Features of small organizations

A86. In small organizations, there may be controls over the process of calculating a particular estimate, but the formal procedure for applying them differs. In addition, in small organizations, a decision may be made to abolish certain types of controls due to the active participation of management in the process of preparing financial statements. In very small organizations, the auditor may establish very few controls. For this reason, the audit procedures are likely to respond to the assessed risks in a substantive manner, with the auditor taking one or more of the other responses listed in paragraph 13.

Calculating a Point Score or Range of Estimates (Ref: Para. 13 (d))

A87. Calculating a point estimate or range of estimates to validate management's point estimate can be an effective response to risks when:

the estimated value is calculated in a way that is different from the standard data processing in the organization's accounting system;

The auditor's analysis of similar accounting estimates in the prior period's financial statements suggests that management's process for calculating those estimates in the current period is likely to be ineffective.

the organization's controls over the management's calculation of accounting estimates are insufficiently developed or used ineffectively;

Events or transactions that occur or take place between the period end date and the date of the auditor's report contradict management's point of view.

the auditor has the ability to tap into alternative sources from which the data can be used to calculate a point estimate or range of estimates.

A88. Even when an organization's controls are well designed and used effectively, calculating a point estimate or range of estimates can be an effective response to the assessed risks. In other situations, the auditor may consider applying this approach to determine the need for further procedures and, if such a need is established, to determine their nature and scope.

A89. The approach used by the auditor to calculate a point estimate or a range of estimates may differ depending on which option the auditor considers most appropriate in the circumstances. For example, the auditor might first calculate a preliminary point estimate and then assess its sensitivity to changes in assumptions to refine the range for verifying management's point estimate. Alternatively, the auditor can start by calculating a range of estimates to determine a point estimate, if possible.

A90. As opposed to calculating a range of estimates, the auditor's ability to compute a point estimate depends on several factors, including the model used, the nature and extent of the data available to the auditor, and the uncertainty associated with the estimate. In addition, the decision to calculate a point estimate or range of estimates may be dependent on the requirements of the applicable financial reporting framework, which may prescribe a particular point estimate to use after considering alternative results and assumptions, or a particular valuation technique (for example, using a discounted expected value weighted with probabilities).

using a model, for example, a model that is widely used in a specific sector or a specific industry, or a model developed by the organization itself or by the auditor itself;

by further refining management's analysis of alternative assumptions or results, for example by applying a different set of assumptions;

by hiring or engaging in the development or use of the model, or in the formulation of appropriate expert assumptions;

using other comparable conditions, transactions or events, or, if necessary, markets for comparable assets or liabilities.

Obtaining an Understanding of Management's Assumptions or Methods (Ref: Para. 13 (d) (i))

A92. If the auditor calculates a point estimate or a range of estimates using assumptions or a method that differs from those used by management, the auditor is required by paragraph 13 (d) (i) to obtain a reasonable understanding of the assumptions or method used by management to calculate the estimate. ... This will provide the auditor with the information he may need to calculate an appropriate point estimate or range of estimates. In addition, it will help the auditor understand and appreciate any material differences from management's point of view. The reason for the difference may be that the auditor has used different but equally valid assumptions from those used by management. This may indicate a high sensitivity of the estimate to specific assumptions and, therefore, a high degree of uncertainty in the estimate, indicating that there may be significant risk associated with that estimate. Another reason for the difference may be a factual error made by management. Depending on the circumstances, in drawing conclusions, the auditor may decide that it should discuss with management the reasons for the assumptions used and their suitability, and the difference in approach to the calculation of the estimate, if any.

Narrowing the Range of Estimates (Ref: Para. 13 (d) (ii))

A93. If the auditor concludes that it is appropriate to use a range of estimates to support management's point estimate (range audit), that range, in accordance with paragraph 13 (d) (ii), should include all reasonable estimates, not all possible estimates. results. To be suitable for audit purposes, the range of estimates should not include all possible outcomes, as it would then be too broad. An auditor's estimate of a range is useful and effective if the range is narrow enough to enable the auditor to conclude whether the estimate is misstated.

A94. Typically, a range of estimates that is narrowed down to or less than the materiality threshold for performing audit procedures is sufficient for the purpose of assessing the reasonableness of management's point estimate. However, narrowing the range of estimates to a value that is below the materiality threshold for performing audit procedures may not be possible, especially in some industries. This does not necessarily exclude the possibility of an accounting estimate being recognized, but may indicate that the uncertainty inherent in the accounting estimate is such that it is probable that a significant risk is present. Additional responses to significant risks are listed in paragraphs A102 - A115.

A95. Narrowing the range of estimates to a level at which all results in the range are considered reasonable is possible by:

(a) exclusions from the range of estimates of results that are at its extremes that the auditor believes are unlikely;

(b) continuing to narrow the range of estimates based on the available audit evidence to a level at which the auditor believes that all of the results of the range can be considered reasonable. On rare occasions, the auditor may narrow the range of estimates until audit evidence indicates a point estimate.

Analysis of the need for the involvement of individuals with specialized knowledge or skills (Ref: Para. 14)

A96. When planning an audit, the auditor must determine the nature, timing and amount of resources required to complete the audit engagement. Individuals with specialized knowledge and skills can be involved in the planning process, if necessary. In addition, SSA 220 requires the engagement partner to ensure that the engagement team and all external auditor experts who are not part of the engagement team collectively have the qualifications and skills required to perform the audit engagement. In auditing estimates, the auditor may, based on his practical experience and the circumstances of the engagement, determine whether one or more aspects of the estimates should be reviewed by a person (s) with specialized knowledge or skills.

ISA 300, Planning an Audit of Financial Statements, paragraph 8 (e).

ISA 220, Quality Control in an Audit of Financial Statements, paragraph 14.

A97. Factors such as:

The nature of the underlying asset, liability or component of equity in a particular area of ​​activity or industry (for example, mineral deposits, agricultural assets, complex financial instruments);

high degree of estimation uncertainty;

performing complex calculations or using models, for example, when measuring fair value in the absence of an observable market;

complex requirements of the applicable financial reporting framework that apply to the calculation of accounting estimates, including the existence of areas where there are different interpretations or practice of which is conflicting or only evolving;

the procedures that the auditor intends to perform in response to the assessed risks.

A98. For most estimates, even those with inherent uncertainty, it is extremely unlikely that it will be necessary to involve a person with specialized knowledge or skills. For example, it is unlikely that the auditor would require the services of such a person to estimate the allowance for doubtful debts.

A99. However, the auditor may not have the specialized knowledge or skills required to study matters that go beyond accounting or auditing, and may need expert assistance. ISA 620 provides requirements and guidance to follow in determining the need to hire or hire an auditor's expert, and the auditor's responsibilities when using the services of external experts.

ISA 620, Using the Work of an Auditor's Expert.

A100. In addition, in some cases, the auditor may conclude that it is necessary to hire or involve a person with special knowledge or skills in specific areas of accounting or auditing. Individuals with such knowledge and skills may be staff members of the firm or be invited from an organization that is external to the firm. When such persons perform audit procedures as part of an engagement, they are part of the engagement team and are therefore subject to the requirements of ISA 220.

A101. Based on his experience with an expert or other persons with specialized knowledge and skills, the auditor may conclude that he should discuss with such persons the requirements of the applicable financial reporting framework to ensure that their work will be consistent with the audit objectives.

Additional Substantive Testing Procedures to Reduce Significant Risks (Ref: Para. 15)

A102. When auditing accounting estimates that involve significant risks, additional substantive procedures seek to analyze the following factors:

(a) how management has assessed the effect of the uncertainty on the accounting estimate and its possible effect on the appropriateness of the accounting estimate recognized in the financial statements;

(b) the adequacy of the disclosures related to the accounting estimates.

Uncertainty in the estimate

Management's Analysis of Estimation Uncertainty (Ref: Para. 15 (a))

A103. Depending on the circumstances, management may evaluate alternative assumptions or the results of accounting estimates using different methods. One method that management can use is sensitivity analysis. This technique may involve determining how the monetary value of an accounting estimate changes using different assumptions. Due to the fact that different market participants use different assumptions, changes are possible even for the estimates measured at fair value. Based on the results of the sensitivity analysis, it is possible to prepare a number of outcome scenarios - "pessimistic" and "optimistic", sometimes referred to as the "range of results calculated by management".

A104. The result of a sensitivity analysis may indicate that the estimate is not sensitive to changes in specific assumptions. But it can also show the sensitivity of the estimate to a change in one or more assumptions, which the auditor should pay particular attention to in the future.

A105. This does not mean that any one method of reducing estimation uncertainty (for example, sensitivity analysis) is preferred over any other, or that management's analysis of alternative assumptions or results should be extensive and supported by a large amount of documentation. Rather, it is about determining whether management has assessed the potential effect of uncertainty on an important accounting estimate, rather than a specific way of making that estimate. Consequently, in cases where management has not considered alternative assumptions or results, the auditor may need to discuss with management how it estimated the effect of uncertainty on an accounting estimate and request supporting evidence from management.

Features of small organizations

A106. Small organizations can use simple tools to analyze estimation uncertainty. In addition to reviewing the available documentation, the auditor may obtain other audit evidence of management's study of alternative assumptions or results by requesting management to do so. In addition, management may not have the experience necessary to investigate alternative results or apply another method to reduce the uncertainty in accounting estimates. In such cases, the auditor can explain to management the process for examining alternative assumptions or results, the methods it can use, and how that process is documented. It should be remembered, however, that the above does not in any way alter the responsibilities of management in preparing the financial statements.

Significant Assumptions (Ref: Para. 15 (b))

A107. The assumption used to calculate an estimate may be considered significant if a moderate change in that assumption could seriously affect the calculation of the estimate.

A108. Significant assumptions made by management based on its experience can be substantiated by the results of management's ongoing strategic analysis and risk management. Even if the strategic review and risk management processes are not formally approved, as is often the case in small organizations, the auditor can assess assumptions by making inquiries and discussions with management, and performing other audit procedures to ensure that sufficient due diligence is obtained. evidence.

A109. Matters that the auditor should consider in assessing management's assumptions are listed in paragraphs A77 - A83.

Intention and Competence of Management (Ref: Para. 15 (c))

A110. Matters regarding management's assumptions, intentions and competence that the auditor should consider are listed in paragraphs A13 and A80.

Calculating a Range of Estimates (Ref: Para. 16)

A111. In preparing the financial statements, management may believe that it has adequately mitigated the effect of uncertainty on accounting estimates that involve significant risks. However, in some circumstances, the auditor may conclude that the measures taken by management were insufficient. Such circumstances, in the auditor's opinion, may be:

The inability to obtain sufficient appropriate audit evidence from an assessment of the measures taken by management to reduce the impact of estimation uncertainty.

The need to further explore the degree of uncertainty inherent in a particular accounting estimate, for example when the auditor is aware of a wide range of results for similar accounting estimates in similar circumstances.

It is extremely unlikely that other audit evidence will be obtained, for example, from an examination of events that occurred prior to the date of the auditor's report.

Indicators of possible management bias in the calculation of accounting estimates.

A112. Items that the auditor should consider in determining the range of estimates for a specified purpose are discussed in paragraphs A87 - A95.

Recognition and measurement criteria

Recognition of Accounting Estimates in the Financial Statements (Ref: Para. 17 (a))

A113. Where an accounting estimate is recognized by management in the financial statements, the auditor is required to ensure that the method used to calculate that accounting estimate is reliable and satisfies the recognition criteria in the applicable financial reporting framework.

A114. For accounting estimates that have not been recognized, the auditor is required to ensure that the recognition criteria in the applicable financial reporting framework are actually met. Even if an accounting estimate has not been recognized and the auditor has concluded that the decision not to recognize is reasonable, it may be necessary to disclose the relevant circumstances in the notes to the financial statements. The auditor may also consider it necessary to draw the attention of users of financial statements to significant valuation uncertainties and add an Emphasis of Matter paragraph to the auditor's report. ISA 706 provides requirements and guidance for the inclusion of this clause.

ISA 706, Emphasis of Matter and Other Matter Sections in the Auditor's Report.

Accounting Basis (Ref: Para. 17 (b))

A115. For fair value measurements, some financial reporting frameworks imply that a prerequisite a reliable measurement of fair value is required to require or authorize fair value measurements and disclosures. In some cases, this provision can be derogated from, for example, in the absence of a suitable method or basis for calculating the estimates. In such cases, the auditor is required to ascertain whether it is lawful that management has departed from a provision in the applicable financial reporting framework regarding the use of fair value.

Determining the Reasonableness of Accounting Estimates and Identifying Misstatements (Ref: Para. 18)

A116. Based on the audit evidence obtained, the auditor may conclude that a difference exists between the estimate and management's point estimate. If audit evidence supports a point estimate, the difference between the auditor's point estimate and management's point estimate is misstatement. If the auditor has concluded that the audit's estimate of the range provides sufficient appropriate audit evidence, such evidence will not support management's point estimate that is outside the auditor's estimate of the range. In such cases, the amount of misstatement would be no less than the difference between management's point estimate and the closest point in the auditor's estimate of the range.

A117. If management has changed an accounting estimate or the method of calculating it from the prior period based on its own opinion of the change in circumstances, the auditor may conclude, based on audit evidence, that the accounting estimate is misstated as a result of management's subjective change. this is an indication of possible management bias (see paragraphs A124 - A125).

A118. ISA 450 provides guidance on how to distinguish between misstatements for the auditor's assessment of the effect of uncorrected misstatements on the financial statements. Misstatements in accounting estimates, whether due to fraud or error, may result from:

ISA 450, Evaluation of Misstatements Identified during the Audit.

undoubted (factual) distortions;

Differences arising from management's judgments about accounting estimates that the auditor considers unreasonable, or the choice or application of accounting policies that the auditor considers inappropriate (judgment misstatements).

The auditor's best estimate of misstatements in populations, including extrapolating misstatements identified in audit samples to all populations from which such samples were drawn (extrapolated misstatements).

In some cases, an accounting misstatement may arise from the cumulative effects of the circumstances described, making it difficult or even impossible to identify any such misstatement.

A119. The analysis of the reasonableness of accounting estimates and related information disclosed in the notes to the financial statements, both in accordance with the requirements of the applicable financial reporting framework and on a voluntary basis, covers, in general, the same aspects that are considered in the process of auditing accounting estimates recognized in financial reporting.

Accounting disclosures

Disclosures in Accordance with the Requirements of the Applicable Financial Reporting Framework (Ref: Para. 19)

A120. The presentation of financial statements in accordance with the requirements of the applicable financial reporting framework implies sufficient disclosure of information on material matters. The applicable financial reporting framework may permit or prescribe disclosures related to accounting estimates, and some entities may own initiative disclose Additional information in the notes to the financial statements. The following information may be disclosed:

information about the assumptions used;

information about the valuation method used, including any applicable model;

justification of the choice of the assessment method;

the impact of any changes on the valuation method from the previous period;

sources and consequences of estimation uncertainty.

Such information is important for users of the financial statements to understand the accounting estimates recognized or disclosed therein, which requires sufficient appropriate audit evidence that the disclosed information complies with the requirements of the applicable financial reporting framework.

A121. In some cases, the applicable financial reporting framework may require specific disclosures about estimation uncertainty. For example, some financial reporting frameworks prescribe:

disclosure of key assumptions and other sources of estimation uncertainty that pose a significant risk of a significant adjustment to the carrying amount of assets and liabilities; the sections in which such information is to be disclosed may be titled "Principal Sources of Estimation Uncertainty" or "Critical Estimates";

disclosure of the range of possible outcomes and the assumptions used in determining it;

Disclosures about the importance of fair value measurements to an entity's financial position and performance;

disclosure of information on qualitative factors, such as exposure to risks and their causes, the organization's objectives, risk management policies and procedures, and risk assessment methods, as well as information on any changes in these factors from the previous period;

disclosures about quantitative factors, such as the organization's exposure to risk, using information obtained from internal sources of key management personnel, including information about credit risk, liquidity risk and market risk.

Disclosures about the Uncertainties in Accounting Estimates that Raise Significant Risks (Ref: Para. 20)

A122. For accounting estimates that involve significant risk, even if disclosed in accordance with the applicable financial reporting framework, the auditor, in the circumstances, based on the facts identified, may conclude that there is insufficient disclosure about estimation uncertainty. The importance of the auditor's assessment of the adequacy of the disclosures about estimation uncertainty increases as the range of possible outcomes of accounting estimates increases with respect to materiality (see paragraph A94 for explanation).

A123. In some cases, the auditor may consider it appropriate to ask management to describe in the notes to the financial statements the circumstances that led to the estimation uncertainty. HKSA 705 provides guidance as to how the auditor's report reflects the auditor's opinion that the information on estimation uncertainty disclosed by management in the financial statements is insufficient or misleading.

ISA 705 Modified Opinion in the Auditor's Report.

Signs of Potential Management Bias (Ref: Para. 21)

A124. During the audit process, the auditor may receive information about the judgments and decisions of management, indicating a possible bias of the latter. It may influence the auditor's conclusions about whether the results of the audit risk assessment and the measures taken in response to the assessed risks are still correct, and the auditor may need to consider the effect of such information on all further audit activities. In addition, such information may affect the auditor's assessment of whether or not the financial statements as a whole are materially misstated, as specified in ISA 700.

ISA 700 Forming an Opinion and Reporting on Financial Statements.

A125. Indicators that may indicate management bias in the calculation of accounting estimates include:

Changes in an accounting estimate or in the method for calculating it based on management's subjective opinion of a change in circumstances;

the entity's use of its own assumptions in measuring fair value, although such assumptions contradict observable assumptions of market participants;

Selecting or forming significant assumptions that result in a point estimate that is beneficial to management;

selection of a point estimate that may indicate an optimistic or pessimistic scenario.

Written Statements (Ref: Para. 22)

A126. The use of written statements is discussed in ISA 580. Depending on the nature, materiality and degree of uncertainty of the estimates, written representations regarding estimates recognized or disclosed in the financial statements may include statements:

ISA 580 Written Representations.

The relevance and reasonableness of the valuation processes, including the underlying assumptions and models used by management in making accounting estimates, in the context of the applicable financial reporting framework, and the consistent implementation of those processes.

Assumptions adequately reflect management's intention and ability to implement a specific course of action on behalf of the entity, if this is important for accounting estimates and disclosures.

The completeness of the accounting disclosures and their relevance to the applicable financial reporting framework.

the absence of events after the reporting date requiring adjustments to accounting estimates and disclosures included in the financial statements.

A127. For accounting estimates not recognized or disclosed in the financial statements, written representations may also include statements:

The reasonableness of management's finding that the recognition or disclosure criteria are not met in the applicable financial reporting framework (see paragraph A114).

The reasonableness of management's decision to ignore the fair value requirement in the entity's applicable financial reporting framework for accounting estimates that were calculated or disclosed using an amount other than fair value (see paragraph A115).

Documentation (Ref: Para. 23)

A128. Documenting indications of possible management bias identified during the audit helps the auditor to conclude whether the results of the audit risk assessment and the actions taken in response to the assessed risks are still correct, and to determine whether the financial statements as a whole are not material. distortion. Paragraph A125 provides examples of indicators that indicate possible management bias.

Appendix

(see point A1)

Fair value measurements and disclosures when applying different financial reporting frameworks

This appendix discusses the fair value measurement and disclosure rules by reference from a different financial reporting framework.

1. Different financial reporting frameworks require or allow multiple options for fair value measurement and related disclosures in the financial statements. They also vary in the amount of guidance on the basis for measuring assets and liabilities and disclosures. Some of them contain instructions of a prescriptive nature, others are general, and still others do not contain any instructions at all. In addition, some industries have very specific practices in calculating fair value measurements and disclosing related information.

2. Different financial reporting frameworks may use different definitions of the term "fair value" (including in relation to different assets, liabilities or disclosures within a particular framework). For example, IAS 39 defines fair value as “the amount for which an asset could be exchanged or settled in a transaction between parties that are independent of each other who are aware of the terms of the transaction and are willing to do so.” Fair value generally refers to a current transaction rather than settlement at a past or future date. Consequently, the fair value measurement process is to determine the estimated price at which the transaction could be committed. Moreover, terms such as “value in use”, “value in use” or similar terms may be used in different financial reporting frameworks, but they are equally consistent with fair value as defined in this Standard.

IAS 39 “Financial Instruments: Recognition and Measurement.

3. Different financial reporting frameworks may have different requirements for changes in fair value measurements over time. For example, one framework may require changes in the fair value measurements of certain assets or liabilities to be recorded directly in equity, and another in profit. In some concepts, the decision on whether to use fair value accounting, and if so, how depends on management's intention to implement a specific course of action for a particular asset or liability.

4. Different financial reporting frameworks may require specific fair value measurements and disclosures in the financial statements, and may require or permit them to varying degrees. Financial reporting frameworks can:

establish requirements for the measurement, presentation and disclosure of certain information included in the financial statements, or information disclosed in the notes to the financial statements or presented as additional information;

Allow some fair value measurements at the discretion of the entity or only if certain criteria are met;

Prescribe a specific method for determining fair value, for example, an independent valuation, or specific methods of applying the discounted cash flow method;

allow to choose a method for determining fair value from several alternative ones (selection criteria can be both definite and uncertain);

5. Certain financial reporting frameworks assume that a reliable determination of fair value is a prerequisite for requiring or authorizing fair value measurements and disclosures. In some cases, this condition can be derogated from, for example, if the asset or liability does not have a quoted market price in an active market, and other methods of reliable measurement of fair value are clearly unsuitable or cannot be applied. Some financial reporting frameworks may establish a fair value hierarchy that classifies fair value inputs from observable inputs based on quoted prices and active markets to unobservable inputs that reflect the entity's own judgments about the assumptions that market participants would use. ...

6. Certain financial reporting frameworks require certain adjustments or changes in the measurement information, or provide different guidance for specific assets or liabilities. For example, accounting for investment property may require adjustments to the estimated market value such as adjustments to the estimated closing price on a sale, adjustments related to the condition and location of such property, and other adjustments. Likewise, in the absence of an active market for a particular asset, adjustments or revisions to published quotes may be required to obtain a more reasonable estimate of fair value. For example, quoted market prices may not reflect fair value if the market is infrequent, the market is not yet formed, or the number of goods traded on it is insignificant relative to the total number of goods available. Consequently, adjustments or changes in such market prices may be required, and this may require the use of alternative sources of market information. In addition, in some cases, the determination of the fair value or potential impairment of an asset or liability may require taking into account the collateral provided for it (for example, collateral for certain types of investments in debt instruments).

7. In most financial reporting frameworks, fair value measurements are based on the assumption that the entity will be going concern, that it has no intention or need to wind up, materially curtail its business, or enter into an unfavorable transaction. Therefore, in in this case The fair value will not be the amount that the entity would receive or pay in a forced transaction, forced liquidation or sale in the event of bankruptcy. On the other hand, the general economic situation or the situation in a particular industry may result in a lack of liquidity in the market, and therefore, to predict the fair value, low and sometimes very low prices should be used. However, when determining the fair value of assets and liabilities, if required or permitted by the applicable financial reporting framework, an entity must take into account the current economic or operating situation, but such a framework may or may not be used. For example, management's plans to quickly sell an asset in order to achieve a specific business objective may be important in determining the fair value of that asset.

Fair value measurement prevalence

8. Financial reporting frameworks are increasingly focusing on the measurement and disclosure of fair value. Fair value can be reflected in the financial statements different ways and influence the preparation of the latter in different ways, including by measuring at fair value:

Certain assets or liabilities, such as liquid securities or obligations to fulfill a liability on a financial instrument, that are regularly or periodically measured based on current market prices;

certain components of equity, for example, when accounting for the recognition, measurement and presentation of certain financial instruments that have characteristics of equity, such as bonds, which the holder can convert into ordinary shares of the issuer;

certain assets or liabilities acquired in a business combination; for example, the initial determination of goodwill arising on an acquisition in a business combination is generally based on the estimated fair value of the identifiable assets and liabilities acquired and the fair value of the consideration transferred;

certain assets or liabilities, one-time adjusted to fair value; some financial reporting frameworks may involve the use of a fair value measurement to determine the amount of an adjustment to an asset or group of assets in determining the impairment of an asset, for example, testing the impairment of goodwill acquired in a business combination based on the fair value of a specific operating entity or reporting unit, which then Allocated to groups of assets and liabilities of such an entity or such a unit in order to obtain the estimated amount of goodwill for the purpose of comparison with the reported amount;

consolidated positions of assets and liabilities. In certain circumstances, to measure a class or group of assets or liabilities, it is required to aggregate the fair values ​​of the individual assets or liabilities included in that class or group. For example, in accordance with the requirements of the applicable financial reporting framework for an entity, an assessment of a diversified loan portfolio may be based on fair value selected categories loans that make up such a portfolio;

information disclosed in the notes to the financial statements or presented as additional, but not recognized in the financial statements.

See also:

• The main objectives of the independent auditor and the conduct of an audit in accordance with International Standards on Auditing (ISA 200)

Guidance on auditing accounting estimates in the financial statements is provided in ISA 540, Auditing Accounting Estimates. This standard is not intended to be used in the verification of forward-looking information, although many of the procedures in the standard may serve this purpose. The term “accounting estimate” is defined in this standard as an approximate amount of an item in the absence of precise measurement methods (provisions for losses, for various reasons, etc.).
The Nature of Accounting Estimates section indicates that the process of determining an accounting estimate may be simple or complex depending on the nature of the item (for example, renting charges may be a simple calculation, while estimating a provision for slow and surplus inventory may require extensive analysis. current data and projections of future sales). If, as a result of an article uncertainty or lack of objective evidence, it is impossible to obtain reliable estimates, the auditor should consider whether there is a need to modify the auditor's report in accordance with ISA 700, Auditor's Report (Opinion) on Financial Statements.
In the Audit Procedures section, the auditor is directed to conduct an audit of the accounting estimates to determine the reasonableness of the accounting estimates and the degree of disclosure about it. In such an audit, the auditor is asked to choose one of the following approaches or a combination of them:
reviewing and testing the process used by management to derive estimates;
using an independent assessment to compare with the one prepared by management;
a review of subsequent events that validate the estimates made.
For the analysis and procedures used by the entity's management, the auditor should:
evaluate the data and analyze the assumptions on which the estimate is based;
check the calculations performed during the assessment;
compare the estimated values ​​of previous periods with the actual results of these periods;
Consider the procedures for approving accounting estimates by management.
Data evaluation and analysis of assumptions enable the auditor to establish the degree of accuracy, completeness and relevance of the data on which the estimate is based. In a complex assessment process using special methods, the auditor has the right to use the results of the work of experts, guided by the provision of ISA 620 "Using the work of an expert".
The nature, timing and extent of testing in the audit of the calculation procedures used by the management of the economic entity, in accordance with this ISA, are dependent on the complexity of accounting estimates, the auditor's assessment of the procedures and methods used by the entity to obtain accounting estimates, and the materiality of these accounting estimates in the context of a financial reporting.
Comparing the estimates for previous periods with actual results for the same periods will help the auditor:
Obtain evidence of the overall robustness of the assessment procedures used by the subject;
consider the need to adjust the valuation formulas;
establish whether there is a need to make the appropriate adjustments and disclose the required information.
The section “Using an independent appraisal” states that the auditor can perform or obtain an independent appraisal and compare it with the estimate prepared by management. When using an independent assessment, the auditor should determine the data, consider the assumptions and test the calculation procedures performed for that independent assessment. It is also pointed out that it is advisable to compare the estimated values ​​for previous periods with the actual results of these periods.
The Review Assessment of Subsequent Events section notes that transactions and events that occurred after the end of the reporting period but prior to the completion of the audit may provide audit evidence regarding accounting estimates made by management. The auditor's review of similar transactions and events may reduce or even eliminate the need for reviewing or testing management's procedures in preparing an accounting estimate, or the need for an independent assessment when reviewing the reasonableness of an accounting estimate.
In accordance with the Evaluation of Results of Audit Procedures, the auditor should make a final assessment of the reasonableness of accounting estimates based on knowledge of the client's business and whether the estimates are consistent with other audit evidence obtained in the audit.
If there is a discrepancy between the auditor's estimate of the amount supported by available audit evidence and the estimate recorded in the financial statements, the auditor should determine whether an adjustment is necessary to reflect the difference. If the difference is reasonable (for example, because the amount in the financial statements is within the acceptable range), no adjustment is necessary. If the auditor considers that this existing difference is not justified, then management should be asked to revise the accounting estimate. In the event of refusal, a reassessment is required, and the existing difference should be considered a misstatement and considered together with other misstatements in assessing whether the effect of such misstatement is material on the financial statements.
In addition, the auditor should consider whether, for individual amounts of difference that have been accepted as reasonable, there is a general tendency to overestimate or understate such that, in aggregate, this could have a material effect on the financial statements. In such cases, the auditor should evaluate the estimates collectively.
On the basis of this ISA, the PSAD "Audit of accounting estimates" has been developed. The standard establishes the main provisions and rules for auditing the estimated values ​​contained in the financial statements.
According to the PSAD, the term “estimated values” is understood as the values ​​of accounting indicators calculated by the management of an economic entity that are admissible in accordance with accounting rules if it is impossible to determine the exact values ​​or in the absence of independent estimates external to the economic entity. Estimated values ​​include reserves, funds, governing accounting items, the composition of which is stipulated by the accounting rules.
As in ISA 540, responsibility for accounting accounting estimates rests with the head of the entity.
Estimates can be simple or complex, depending on the calculation technique. Simple estimated values ​​are obtained on the basis of any one calculation (for example, accumulation funds are determined on the basis of a fixed percentage of the profit received; the rent included in the costs of the reporting period is taken in the amount specified in the contract), and complex estimates are based on several indicators , using special forecasts (for example, an assessment of possible losses from a decrease in the value of inventories may require a serious analysis of current data and forecasting future sales volumes).
Depending on the time of calculation, the estimated values ​​can be current and reported. The current estimated values ​​relate to accounting and are reflected in the accounting accounts at the frequency with which the accounting registers are maintained (for example, the accrual of a reserve for the repair of fixed assets). The reported estimated values ​​are reflected only in the preparation of financial statements and are not recorded until the end of the year (for example, the accrual of a provision for the depreciation of investments in securities).
The methods for calculating the estimates should be spelled out in the accounting policy.
Estimates are often made in a state of uncertainty about what happened and possible events and rely on the opinion of the economic agents who calculate them. Therefore, the use of estimates in financial statements increases the risk of material misstatements in them.
The auditor is required to obtain sufficient audit evidence that the accounting estimates are reliable in the circumstances and, if necessary, include appropriate explanations. Evidence supporting accounting estimates is often less convincing and more difficult to obtain than evidence supporting other elements of the accounting statements.
When planning the methods, timing and scope of audit procedures, the auditing organization should study the methods used by the management of the economic entity in the calculation of accounting estimates.
When auditing accounting estimates, the firm shall apply one or a combination of the following methods:
analysis and verification of the procedure used by the management of the economic entity to calculate the estimated value;
conducting an independent assessment for comparison with the estimated value prepared by the management of the economic entity;
analysis of subsequent events supporting the estimated estimate.
The stages of the method of analysis and verification of the assessment procedure used by the management of an economic entity are disclosed.
At the stage of analyzing the source data and methods for calculating the estimated values, the audit organization analyzes the accuracy, completeness and consistency of the data that serve as the basis for calculating the estimated value. The information used in the calculation should not contradict the accounting data. For example, when checking the provision for warranty repairs and warranty services, the auditor obtains audit evidence that the volume data finished products, standing on the warranty service, correspond to the data on the sale of this product.
The audit organization can obtain evidence from sources external to the audited entity. It assesses how correctly the collected data were interpreted by the management of the economic entity and used to build the forecast underlying the calculation of the estimated value. An example is timing analysis accounts receivable when calculating a provision for doubtful debts, in which the auditing organization establishes which temporary groups the debt is divided into and how justified the values ​​of the percentage of provision for each of them are.
The auditing organization assesses the sufficiency of the basis for choosing the base value for calculating the estimated value. In some cases, data external to the economic entity can be used, such as: indicators from macroeconomic or sectoral statistics, inflation rate, interest rates, employment level, expected market growth. In other cases, when indicators specific to a given economic entity are assessed, the calculations are based on internal data obtained.
When analyzing the data and assumptions of the management of the economic entity that underlie the calculation of the accounting estimate, the auditor considers, among other things:
the reliability of the estimated values ​​in the light of the actual indicators of previous periods;
the adequacy of these values ​​to the assumptions used in: calculating other estimates;
compliance of the estimated values ​​with the planned activities.
The audit organization needs to pay special attention to baseline calculations that are sensitive to changes and are subject to material misstatements.
It analyzes the correct choice by the management of an economic entity of methods for calculating estimated values, the adequacy of these methods to the position in which this entity is located, and the sequence of their application. Such analysis assumes that the audit firm knows the financial results of the economic entity in previous periods, the methods used by other organizations in the industry, and management plans for the future.
At the stage of checking the calculation of the estimated values, the auditor checks the arithmetic calculations of the estimated values. Methods, timing and scope audit depend on factors such as the complexity of the calculations, the results of the analysis by the audit organization of the procedures and methods used by the economic entity in calculating the estimated values, and the significance of the estimate for the financial statements. *
At the comparison stage, the auditor, if possible, compares the accounting estimates used in previous periods with the actual figures for these periods for:
obtaining evidence of the reliability of the procedures used by the economic entity for calculating the estimated values;
finding the necessary adjustments to the formulas for calculating the estimated values;
determining whether there were differences between actual figures and their previous estimates, whether they were measured, and whether any necessary adjustments or clarifications were made.
At the stage of considering the procedure for approving the methodology for calculating the estimated values ​​by the management of the economic entity, the auditor checks how the management of the economic entity establishes the rules for calculating the estimated values, how it analyzes the estimated information, what conclusions and decisions it makes on its basis, as well as how this process is reflected in the documents of the economic entity. subject.
The audit organization can obtain an independent assessment and compare it with the estimated value calculated by the management of the economic entity. As an independent assessment, the auditing organization may use the values ​​obtained by third-party expert appraisers. The auditor also has the right to independently evaluate the data, consider assumptions and apply procedures.
calculation for the formation of the estimated value. In addition, it may be helpful to compare the estimates used in previous periods with the actual results of those periods. For example, the auditor can independently, based on the data available to him, predict the change in the price of securities. In this case, to check the provision for impairment of securities, the auditor only needs to compare his forecast with the estimated value of this value contained in the financial statements.
In the case of applying the method of analysis of subsequent events that support the calculated estimate, the auditor can analyze the actions and events that will occur after the end of the audit period, but before the end of the audit. Such subsequent events may provide audit evidence about the accounting estimates made by the entity's management. The analysis of such actions and events can reduce or even negate the need to analyze and verify the procedures used by the management of the economic entity for calculating the accounting estimates, or using an independent assessment. For example, a fall in the price of securities can confirm the reliability of the reserve accrued by an economic entity last year.
The auditing organization can use different methods in relation to different items of financial statements based on estimates, and can also use combinations of different verification methods in relation to one of the estimated values.
According to the section “Analysis of the results of audit procedures”, the auditing organization must make a final conclusion about the reliability of the estimated values ​​based on its knowledge of the activities of the economic entity and the compliance of the verified estimated value with other audit evidence obtained during the audit.
If there are differences between the estimated value determined by the audit organization on the basis of available audit evidence and a similar indicator reflected in the financial statements, then the audit organization decides whether it is necessary to make corrections to the reporting. If the difference is immaterial, for example, when the amount contained in the financial statements is within acceptable tolerances, correction may not be required.
If the auditing organization considers the difference to be material, it may propose a revision to the management of the economic entity.
the estimated value. If the management of the economic entity refuses such a revision, the difference will be considered an error and considered together with all other misstatements in assessing the materiality of the impact on the financial statements.
The auditing organization also determines to what extent the differences in estimates of certain indicators recognized as significant are of a similar nature, as a result of which they, accumulating, can have a significant effect on the financial statements. The auditing organization must assess the cumulative effect of such deviations on the financial statements in accordance with the requirements of PSAD No. 13
Responsibilities of the auditor to address errors and fraud during the audit.
Uncertainty accompanying the estimated values, lack of objective data can lead to the impossibility of obtaining a sufficiently reliable estimate. In this case, the auditor needs to consider the issue of refusing to express his opinion on the reliability of the audited financial statements.
The Appendix to the PSAD contains the List of the main estimated values ​​used in accounting. In particular, it included:
depreciation of fixed assets (in the event that economic entity independently determines the useful life of these assets and the corresponding depreciation rates);
depreciation intangible assets(in the case when the economic entity independently determines the useful life of these assets and the corresponding depreciation rates);
doubtful debt reserve;
provision for impairment of investments in securities;
accounts payable for non-invoiced works and services, accrued in accordance with contracts;
reserves for future expenses and payments, including:
- the upcoming payment of vacations,
- for the payment of annual remuneration for seniority,
- for the payment of remuneration based on the results of work for the year,
- for the repair of fixed assets,
- production costs for preparatory work in seasonal industries,
- forthcoming costs for land reclamation and the implementation of other environmental protection measures,
- forthcoming expenses for the repair of rental items,
- for warranty repairs and warranty service,
- coverage of other foreseen costs,
- other similar reserves stipulated by regulatory enactments on accounting.