Auditing and Assurance Standards and Guidance

Auditing Standards (Ireland)

FRC ISAs (UK and Ireland) applicable for periods beginning on or after 15 December 2010 but before 17 June 2016

ISA (UK and Ireland) 540 Auditing, accounting estimates, including fair value accounting estimates, and related disclosures

Application and Other Explanatory Material

Responses to the Assessed Risks of Material Misstatement (Ref: Para. 12 )

Application of the Requirements of the Applicable Financial Reporting Framework (Ref: Para. 12(a) )

Many financial reporting frameworks prescribe certain conditions for the recognition of accounting estimates and specify the methods for making them and required disclosures. Such requirements may be complex and require the application of judgment. Based on the understanding obtained in performing risk assessment procedures, the requirements of the applicable financial reporting framework that may be susceptible to misapplication or differing interpretations become the focus of the auditor's attention.

A54.

Determining whether management has appropriately applied the requirements of the applicable financial reporting framework is based, in part, on the auditor's understanding of the entity and its environment. For example, the measurement of the fair value of some items, such as intangible assets acquired in a business combination, may involve special considerations that are affected by the nature of the entity and its operations.

A55.	In some situations, additional audit procedures, such as the inspection by the auditor of the current physical condition of an asset, may be necessary to determine whether management has appropriately applied the requirements of the applicable financial reporting framework.

A56.

The application of the requirements of the applicable financial reporting framework requires management to consider changes in the environment or circumstances that affect the entity. For example, the introduction of an active market for a particular class of asset or liability may indicate that the use of discounted cash flows to estimate the fair value of such asset or liability is no longer appropriate.