| A87. | Developing a point estimate or a range to evaluate management's point estimate may be an appropriate response where, for example: |
| An accounting estimate is not derived from the routine processing of data by the 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 unlikely to be effective. |
| The entity's controls within and over management's processes for determining accounting estimates are not well designed or properly implemented. |
| Events or transactions between the period end and the date of the auditor's report contradict management's point estimate. |
| There are alternative sources of relevant data available to the auditor which can be used in making a point estimate or a range. |
| A88. | Even where the entity's controls are well designed and properly implemented, developing a point estimate or a range may be an effective or efficient response to the assessed risks. In other situations, the auditor may consider this approach as part of determining whether further procedures are necessary and, if so, their nature and extent. |
| A89. | The approach taken by the auditor in developing either a point estimate or a range may vary based on what is considered most effective in the circumstances. For example, the auditor may initially develop a preliminary point estimate, and then assess its sensitivity to changes in assumptions to ascertain a range with which to evaluate management's point estimate. Alternatively, the auditor may begin by developing a range for purposes of determining, where possible, a point estimate. |
| A90. | The ability of the auditor to make a point estimate, as opposed to a range, depends on several factors, including the model used, the nature and extent of data available and the estimation uncertainty involved with the accounting estimate. Further, the decision to develop a point estimate or range may be influenced by the applicable financial reporting framework, which may prescribe the point estimate that is to be used after consideration of the alternative outcomes and assumptions, or prescribe a specific measurement method (for example, the use of a discounted probability-weighted expected value). |
| A91. | The auditor may develop a point estimate or a range in a number of ways, for example, by: |
| Using a model, for example, one that is commercially available for use in a particular sector or industry, or a proprietary or auditor-developed model. |
| Further developing management's consideration of alternative assumptions or outcomes, for example, by introducing a different set of assumptions. |
| Employing or engaging a person with specialized expertise to develop or execute the model, or to provide relevant assumptions. |
| Making reference to other comparable conditions, transactions or events, or, where relevant, markets for comparable assets or liabilities. |
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