Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p2
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 2/63)
Character Range: 16191–19298

reporting periods commencing on or after 15 December 2019.  Early adoption of this Auditing Standard is permitted prior to this date.  [Note: For operative dates of paragraphs changed or added by an Amending Standard, see Compilation Details.]

Introduction

Scope of this Auditing Standard

      1. This Auditing Standard deals with the auditor's responsibilities relating to accounting estimates and related disclosures in an audit of a financial report. Specifically, it includes requirements and guidance that refer to, or expand on, how ASA 315,[1] ASA 330,[2] ASA 450,[3] ASA 500[4] and other relevant Auditing Standards are to be applied in relation to accounting estimates and related disclosures. It also includes requirements and guidance on the evaluation of misstatements of accounting estimates and related disclosures, and indicators of possible management bias.

Nature of Accounting Estimates

2.                   Accounting estimates vary widely in nature and are required to be made by management when the monetary amounts cannot be directly observed. The measurement of these monetary amounts is subject to estimation uncertainty, which reflects inherent limitations in knowledge or data. These limitations give rise to inherent subjectivity and variation in the measurement outcomes. The process of making accounting estimates involves selecting and applying a method using assumptions and data, which requires judgement by management and can give rise to complexity in measurement. The effects of complexity, subjectivity or other inherent risk factors on the measurement of these monetary amounts affects their susceptibility to misstatement. (Ref: Para. A1–A6, Appendix 1)

3.                   Although this Auditing Standard applies to all accounting estimates, the degree to which an accounting estimate is subject to estimation uncertainty will vary substantially. The nature, timing and extent of the risk assessment and further audit procedures required by this Auditing Standard will vary in relation to the estimation uncertainty and the assessment of the related risks of material misstatement. For certain accounting estimates, estimation uncertainty may be very low, based on their nature, and the complexity and subjectivity involved in making them may also be very low. For such accounting estimates, the risk assessment procedures and further audit procedures required by this Auditing Standard would not be expected to be extensive. When estimation uncertainty, complexity or subjectivity are very high, such procedures would be expected to be much more extensive. This Auditing Standard contains guidance on how the requirements of this Auditing Standard can be scaled. (Ref: Para. A7)

Key Concepts of this Auditing Standard

4.                   This Auditing Standard requires a separate assessment of inherent risk for identified risks of material misstatement at the assertion level.[5] In the context of ASA 540, and depending on the nature of a particular accounting estimate, the susceptibility of an assertion to a misstatement that could be material may be