Accounting estimates

Question 1

accounting estimate

Answer 1

an approximation of a monetary amount in the absence of a precise means of measurement

Question 2

estimation uncertainty

Answer 2

the susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in its measurement. high level of estimation uncertainty increases the risk of material misstatement.

Question 3

when identifying and assessing the RMM the auditor should

Answer 3

evaluate the degree of estimation uncertainty

determine if any of the estimates result in significant risks

when an auditor finds significant risk he must obtain and understanding of relevant controls and see if the mitigate such risks

Question 4

when responding to the assessed risks the auditor should

Answer 4

evaluate whether methods used are appropriate and are applied consistently

should do 1 or more of procedures

1determine whether events up to report date provides evidence about the evidence

2test how management made the estimate

3test operating effectiveness of controls

4develop a point estimate or range to evaluate managements point estimate

Question 5

when evaluating the estimate the auditor should

Answer 5

is estimate reasonable

evaluate adequacy of disclosure (about estimate uncertainty when dealing with significant risks)

indicators of management bias