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 )

Events Occurring Up to the Date of the Auditor's Report (Ref: Para. 13(a) )

A62.	Determining whether events occurring up to the date of the auditor's report provide audit evidence regarding the accounting estimate may be an appropriate response when such events are expected to:

Occur; and

Provide audit evidence that confirms or contradicts the accounting estimate.

A63.

Events occurring up to the date of the auditor's report may sometimes provide sufficient appropriate audit evidence about an accounting estimate. For example, sale of the complete inventory of a superseded product shortly after the period end may provide audit evidence relating to the estimate of its net realizable value. In such cases, there may be no need to perform additional audit procedures on the accounting estimate, provided that sufficient appropriate evidence about the events is obtained.

A64.

For some accounting estimates, events occurring up to the date of the auditor's report are unlikely to provide audit evidence regarding the accounting estimate. For example, the conditions or events relating to some accounting estimates develop only over an extended period. Also, because of the measurement objective of fair value accounting estimates, information after the period-end may not reflect the events or conditions existing at the balance sheet date and therefore may not be relevant to the measurement of the fair value accounting estimate. Paragraph 13 identifies other responses to the risks of material misstatement that the auditor may undertake.

A65.	In some cases, events that contradict the accounting estimate may indicate that management has ineffective processes for making accounting estimates, or that there is management bias in the making of accounting estimates.

A66.

Even though the auditor may decide not to undertake this approach in respect of specific accounting estimates, the auditor is required to comply with ISA (UK and Ireland) 560.¹⁶ The auditor is required to perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial statements and the date of the auditor's report that require adjustment of, or disclosure in, the financial statements have been identified¹⁷ and appropriately reflected in the financial statements.¹⁸ Because the measurement of many accounting estimates, other than fair value accounting estimates, usually depends on the outcome of future conditions, transactions or events, the auditor's work under ISA (UK and Ireland) 560 is particularly relevant.

¹⁶ ISA (UK and Ireland) 560, "Subsequent Events."

¹⁷ ISA (UK and Ireland) 560, paragraph 6.

¹⁸ ISA (UK and Ireland) 560, paragraph 8.