Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p45
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 45/63)
Character Range: 141708–144774

estimation uncertainty, additional procedures that the auditor may request management to perform to understand estimation uncertainty may include, for example, consideration of alternative assumptions or the performance of a sensitivity analysis.

A116.      In considering whether it is practicable to develop a point estimate or range, matters the auditor may need to take into account include whether the auditor could do so without compromising independence requirements. This may include relevant ethical requirements that address prohibitions on assuming management responsibilities.

A117.      If, after considering management's response, the auditor determines that it is not practicable to develop an auditor's point estimate or range, the auditor is required to evaluate the implications for the audit or the auditor's opinion on the financial report in accordance with paragraph 34.

Developing an Auditor's Point Estimate or Using an Auditor's Range (Ref: Para. 28–29)

A118.      Developing an auditor's point estimate or range to evaluate management's point estimate and related disclosures about estimation uncertainty may be an appropriate approach when, for example:

           * The auditor's review of similar accounting estimates made in the prior period financial report suggests that management's current period process is not expected to be effective.

           * The entity's controls within and over management's process for making accounting estimates are not well designed or properly implemented.

           * Events or transactions between the period end and the date of the auditor's report have not been properly taken into account, when it is appropriate for management to do so, and such events or transactions appear to contradict management's point estimate.

           * There are appropriate alternative assumptions or sources of relevant data that can be used in developing an auditor's point estimate or a range.

           * Management has not taken appropriate steps to understand or address the estimation uncertainty (see paragraph 27).

A119.      The decision to develop a point estimate or range also 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, or the most likely outcome).

A120.      The auditor's decision as to whether to develop a point estimate rather than a range may depend on the nature of the estimate and the auditor's judgement in the circumstances. For example, the nature of the estimate may be such that there is expected to be less variability in the reasonably possible outcomes. In these circumstances, developing a point estimate may be an effective approach, particularly when it can be developed with a higher degree of precision.

A121.      The auditor may develop a point estimate or a range in a number of ways, for example,