Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p46
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 46/63)
Character Range: 144531–147516

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, by:

           * Using a different model than the one used by management, for example, one that is commercially available for use in a particular sector or industry, or a proprietary or auditor‑developed model.

           * Using management's model but developing alternative assumptions or data sources to those used by management.

           * Using the auditor's own method but developing alternative assumptions to those used by management.

           * Employing or engaging a person with specialised expertise to develop or execute a model, or to provide relevant assumptions.

           * Consideration of other comparable conditions, transactions or events, or, where relevant, markets for comparable assets or liabilities.

A122.      The auditor also may develop a point estimate or range for only part of the accounting estimate (for example, for a particular assumption, or when only a certain part of the accounting estimate is giving rise to the risk of material misstatement).

A123.      When using the auditor's own methods, assumptions or data to develop a point estimate or range, the auditor may obtain evidence about the appropriateness of management's methods, assumptions or data. For example, if the auditor uses the auditor's own assumptions in developing a range to evaluate the reasonableness of management's point estimate, the auditor may also develop a view about whether management's judgements in selecting the significant assumptions used in making the accounting estimate give rise to indicators of possible management bias.

A124.      The requirement in paragraph 29(a) for the auditor to determine that the range includes only amounts that are supported by sufficient appropriate audit evidence does not mean that the auditor is expected to obtain audit evidence to support each possible outcome in the range individually. Rather, the auditor is likely to obtain evidence to determine that the points at both ends of the range are reasonable in the circumstances, thereby supporting that amounts falling between those two points also are reasonable.

A125.      The size of the auditor's range may be multiples of materiality for the financial report as a whole, particularly when materiality is based on operating results (for example, pre‑tax income) and this measure is relatively small in relation to assets or other balance sheet measures. This situation is more likely to arise in circumstances when the estimation uncertainty associated with the accounting estimate is itself multiples of materiality, which is more common for certain types of accounting estimates or in certain industries, such as insurance or banking, where a high degree of estimation uncertainty is more typical and there