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IAASA issues a paper discussing the audit of accounting estimates.

IAASA has issued a paper discussing the audit of accounting estimates, available here.

Accounting and auditing standards have evolved to reflect the ever increasing complexity of accounting estimates and a new standard on auditing accounting estimates comes into effect for periods beginning on or after 15 December 2019.  IAASA’s paper discusses the requirements of the new auditing standards that apply to accounting estimates, with the introduction of stronger language around professional scepticism, enhanced risk assessment procedures and an enhanced “stand back” requirement. 

IAASA’s paper discusses the findings of audit regulators at an International, European and domestic level and notes that improvements are needed in the quality of auditor’s work on accounting estimates. International audit regulators frequently report findings in the area with improvements needed in risk assessment, assessment and challenge of assumptions, testing of data, use of the work of an auditor’s expert and consideration indicators of bias. IAASA’s paper also presents case studies that demonstrate good practice and poor practice in the Irish market. 

The paper sets out that IAASA expects auditors to challenge assumptions and to question the appropriateness of judgements and decisions. IAASA also expects auditors to apply the requirements of other auditing standards around risk assessment, responses to significant risks, reliance on information produced by the entity, and placing reliance on the work of an expert.