Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p43
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 43/63)
Character Range: 135395–138966

information is sufficiently precise and detailed for the auditor's purposes.[56]

Complex legal or contractual terms (Ref: Para. 25(d))

A108.      Procedures that the auditor may consider when the accounting estimate is based on complex legal or contractual terms include:

           * Considering whether specialised skills or knowledge are needed to understand or interpret the contract;

           * Enquiring of the entity's legal counsel regarding the legal or contractual terms; and

           * Inspecting the underlying contracts to:

                   + Evaluate, the underlying business purpose for the transaction or agreement; and

                   + Consider whether the terms of the contracts are consistent with management's explanations.

Management's Selection of a Point Estimate and Related Disclosures about Estimation Uncertainty

Management's steps to understand and address estimation uncertainty (Ref: Para. 26(a))

A109.      Relevant considerations regarding whether management has taken appropriate steps to understand and address estimation uncertainty may include whether management has:

(a)                Understood the estimation uncertainty, through identifying the sources, and assessing the degree of inherent variability in the measurement outcomes and the resulting range of reasonably possible measurement outcomes;

(b)                Identified the degree to which, in the measurement process, complexity or subjectivity affect the risk of material misstatement, and addressed the resulting potential for misstatement through applying:

(i)                 Appropriate skills and knowledge in making accounting estimates; and

(ii)               Professional judgement, including by identifying and addressing susceptibility to management bias; and

(c)                Addressed estimation uncertainty through appropriately selecting management's point estimate and related disclosures that describe the estimation uncertainty.

The selection of management's point estimate and related disclosures of estimation uncertainty (Ref: Para. 26(b))

A110.      Matters that may be relevant regarding the selection of management's point estimate and the development of related disclosures about estimation uncertainty include whether:

           * The methods and data used were selected appropriately, including when alternative methods for making the accounting estimate and alternative sources of data were available.

           * Valuation attributes used were appropriate and complete.

           * The assumptions used were selected from a range of reasonably possible amounts and were supported by appropriate data that is relevant and reliable.

           * The data used was appropriate, relevant and reliable, and the integrity of that data was maintained.

           * The calculations were applied in accordance with the method and were mathematically accurate.

           * Management's point estimate is appropriately chosen from the reasonably possible measurement outcomes.

           * The related disclosures appropriately describe the amount as an estimate and explain the nature and limitations of the estimation process, including the variability of the reasonably possible measurement outcomes.

A111.      Relevant considerations for the auditor regarding the appropriateness of management's point estimate, may include:

           * When the requirements of the applicable financial reporting framework prescribe the point estimate that is to be used after consideration of the alternative outcomes