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 )

Responses to the Assessed Risks of Material Misstatements (Ref: Para. 13 )

A59.	The auditor's decision as to which response, individually or in combination, in paragraph 13 to undertake to respond to the risks of material misstatement may be influenced by such matters as:

The nature of the accounting estimate, including whether it arises from routine or non routine transactions.

Whether the procedure(s) is expected to effectively provide the auditor with sufficient appropriate audit evidence.

The assessed risk of material misstatement, including whether the assessed risk is a significant risk.

A60.

For example, when evaluating the reasonableness of the allowance for doubtful accounts, an effective procedure for the auditor may be to review subsequent cash collections in combination with other procedures. Where the estimation uncertainty associated with an accounting estimate is high, for example, an accounting estimate based on a proprietary model for which there are unobservable inputs, it may be that a combination of the responses to assessed risks in paragraph 13 is necessary in order to obtain sufficient appropriate audit evidence.

A61.	Additional guidance explaining the circumstances in which each of the responses may be appropriate is provided in paragraphs A62-A95.