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 )

Testing How Management Made the Accounting Estimate (Ref: Para. 13(b) )

A68.	Testing how management made the accounting estimate and the data on which it is based may be an appropriate response when the accounting estimate is a fair value accounting estimate developed on a model that uses observable and unobservable inputs. It may also be appropriate when, for example:

The accounting estimate is derived from the routine processing of data by the entity's accounting system.

The auditor's review of similar accounting estimates made in the prior period financial statements suggests that management's current period process is likely to be effective.

The accounting estimate is based on a large population of items of a similar nature that individually are not significant.

A69.	Testing how management made the accounting estimate may involve, for example:

Testing the extent to which data on which the accounting estimate is based is accurate, complete and relevant, and whether the accounting estimate has been properly determined using such data and management assumptions.

Considering the source, relevance and reliability of external data or information, including that received from external experts engaged by management to assist in making an accounting estimate.

Recalculating the accounting estimate, and reviewing information about an accounting estimate for internal consistency.

Considering management's review and approval processes.