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Auditing accounting estimates that give rise to significant risks

When performing an audit of accounting estimates under ISA 540 (Revised) Auditing accounting estimates and related disclosures, an auditor will need to use their own judgement to determine whether any risks of material misstatement identified or assessed in relation to accounting estimates give rise to a significant risk. This Audit and Assurance guide provides information and guidance to help auditors.

When exercising this judgement, the auditor should also consider the requirements of ISA 315 (Revised) Understanding the entity and its environment. ISA 315 (Revised) explains that, as part of the identification and assessment of risks at the financial statement and assertion level, the auditor should consider at least the following:

There is a clear link between some of the above items and the inherent risk factors identified in ISA 540 (Revised). The assessment of inherent risk at the assertion level in ISA 540 (Revised) is intended to help the auditor in determining whether the risks of material misstatement identified in relation to accounting estimates give rise to a significant risk.