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IAASB modernises auditing of accounting estimates

Oct 05, 2018

The International Auditing and Assurance Standards Board (IAASB) recently released International Standard on Auditing (ISA) 540 (Revised), its revised standard for the audit of accounting estimates and related disclosures. ISA 540 (Revised) reflects a rapidly evolving business environment and ensures that the standard continues to keep pace with the changing market.

This revised standard is the first to be completed as part of the IAASB’s broader program, Addressing the Fundamental Elements of an Audit, and is an important part of IAASB’s efforts to improve audit quality globally. Some of the significant revisions include:

  • An enhanced risk assessment that requires auditors to consider complexity, subjectivity and other inherent risk factors, in addition to estimation uncertainty.
  • A closer link between the enhanced risk assessment and the methods, data and assumptions used in making accounting estimates, including the use of complex models.
  • Specific material to show how the standard is scalable to all types of accounting estimates.
  • Emphasis on the importance of applying appropriate professional scepticism when auditing accounting estimates to foster a more independent and challenging sceptical mindset in auditors.

ISA 540 (Revised) becomes effective for financial statement audits for periods beginning on or after December 15, 2019.