| 8. | When performing risk assessment procedures and related activities to obtain an understanding of the entity and its environment, including the entity's internal control, as required by ISA (UK and Ireland) 315,4 the auditor shall obtain an understanding of the following in order to provide a basis for the identification and assessment of the risks of material misstatement for accounting estimates: (Ref: Para. A12) |
| (a) | The requirements of the applicable financial reporting framework relevant to accounting estimates, including related disclosures. (Ref: Para. A13-A15) |
| (b) | How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements. In obtaining this understanding, the auditor shall make inquiries of management about changes in circumstances that may give rise to new, or the need to revise existing, accounting estimates. (Ref: Para. A16-A21) |
| (c) | How management makes the accounting estimates, and an understanding of the data on which they are based, including: (Ref: Para. A22-A23) |
| (i) | The method, including where applicable the model, used in making the accounting estimate; (Ref: Para. A24-A26) |
| (ii) | Relevant controls; (Ref: Para. A27-A28) |
| (iii) | Whether management has used an expert; (Ref: Para. A29-A30) |
| (iv) | The assumptions underlying the accounting estimates; (Ref: Para. A31-A36) |
| (v) | Whether there has been or ought to have been a change from the prior period in the methods for making the accounting estimates, and if so, why; and (Ref: Para. A37) |
| (vi) | Whether and, if so, how management has assessed the effect of estimation uncertainty. (Ref: Para. A38) |
| 9. | The auditor shall review the outcome of accounting estimates included in the prior period financial statements, or, where applicable, their subsequent re-estimation for the purpose of the current period. The nature and extent of the auditor's review takes account of the nature of the accounting estimates, and whether the information obtained from the review would be relevant to identifying and assessing risks of material misstatement of accounting estimates made in the current period financial statements. However, the review is not intended to call into question the judgments made in the prior periods that were based on information available at the time. (Ref: Para. A39-A44) |
| 4 ISA (UK and Ireland) 315, paragraphs 5-6 and 11-12. |
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