IAASB Proposes New Standard to Modernise Auditing of Accounting Estimates

June 2017

The International Auditing and Assurance Standards Board (IAASB) has issued the exposure draft, Proposed International Standard on Auditing 540 (Revised), Auditing Accounting Estimates and Related Disclosures. The comment deadline is 1 August 2017.

The proposed amendments to International Standard on Auditing (ISA) 540 would require auditors to focus more closely on risks of material misstatements arising from accounting estimates and to address those risks in a more granular manner. The IAASB proposed the amendments as part of its project to address issues relevant to the audits of financial institutions.

Outreach conducted by the IAASB indicated that both regulators and auditors believed that the IAASB should consider the accounting estimate issues, such as loss provisions, applicable to audits of financial institutions arising from the adoption of International Financial Reporting Standard (IFRS) 9, Financial Instruments, before its effective date.

The core objective of the exposure draft is, as noted in the Executive Summary, “for the auditor to obtain sufficient appropriate audit evidence to evaluate whether accounting estimates and related disclosures are reasonable in the context of the applicable financial reporting framework, or are misstated”.

The exposure draft proposes to:

  • Enhance requirements for risk assessment procedures to include specific factors related to accounting estimates, namely complexity, judgement, and estimation uncertainty 
  • Set more detailed expectations for the auditor’s response to identified risks, including augmenting the auditor’s application of professional scepticism
  • Be of use to business or audit firms no matter the size or sector.

The exposure draft is available on this link.

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