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 )

Evaluating the method of measurement (Ref: Para. 13(b)(i) )

A71.	When the applicable financial reporting framework does not prescribe the method of measurement, evaluating whether the method used, including any applicable model, is appropriate in the circumstances is a matter of professional judgment.

A72.	For this purpose, matters that the auditor may consider include, for example, whether:

Management's rationale for the method selected is reasonable.

Management has sufficiently evaluated and appropriately applied the criteria, if any, provided in the applicable financial reporting framework to support the selected method.

The method is appropriate in the circumstances given the nature of the asset or liability being estimated and the requirements of the applicable financial reporting framework relevant to accounting estimates.

The method is appropriate in relation to the business, industry and environment in which the entity operates.

A73.

In some cases, management may have determined that different methods result in a range of significantly different estimates. In such cases, obtaining an understanding of how the entity has investigated the reasons for these differences may assist the auditor in evaluating the appropriateness of the method selected.