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Preparing for changes to ISA 540 Auditing Accounting Estimates
Tackling enhanced and increased requirements in the revised ISA 540 will take a fair amount of work, says Louise Sharp.
Let’s face it – auditing accounting estimates has never been easy. Estimates are difficult to measure, often involve management’s judgement and can be based on highly complex models. So, by their very nature, they pose huge challenges for auditors. Not only are they difficult to audit, but their importance to investors and other stakeholders has increased in recent years, as changes to financial reporting standards have resulted in the inclusion of more accounting estimates in the financial statements.
Inspection findings have highlighted weaknesses in the way estimates are being audited, which has led to repeated calls from regulators for improvements in this area. This is one of the reasons why the International Auditing and Assurance Standards Board (IAASB) embarked on a project to revise ISA 540.