ICAEW.com works better with JavaScript enabled.

Continue reading

Risk factors in auditing accounting estimates

The risk that an accounting estimate might be materially misstated is influenced by a number of factors. You can find out more below on risk factors and how they may influence your audit of accounting estimates.

Accounting estimates are subject to, or affected by, risk factors that influence the likelihood and magnitude of a potential misstatement. These factors include:

These factors often do not exist in isolation, are often inextricably linked and are affected by the relevance and reliability of available information sources. For example, the more judgement that is involved in making the estimate, the greater the estimation uncertainty is likely to be. The severity and interaction of these factors will therefore impact the assessment of risk of material misstatement. For instance, those accounting estimates that are susceptible to a higher degree of uncertainty are also subject to a higher risk of material misstatement. These estimates may give rise to significant risks.