Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p38
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 38/63)
Character Range: 121123–124157

misstatement. For example, sale of the complete inventory of a discontinued product shortly after the period end may provide sufficient appropriate audit evidence relating to the estimate of its net realisable value at the period end. In other cases, it may be necessary to use this testing approach in connection with another approach in paragraph 18.

A92.         For some accounting estimates, events occurring up to the date of the auditor's report are unlikely to provide sufficient appropriate audit evidence regarding the accounting estimate. For example, the conditions or events relating to some accounting estimates develop only over an extended period. Also, because of the measurement objective of fair value accounting estimates, information after the period‑end may not reflect the events or conditions existing at the balance sheet date and therefore may not be relevant to the measurement of the fair value accounting estimate.

A93.         Even if the auditor decides not to undertake this testing approach in respect of specific accounting estimates, the auditor is required to comply with ASA 560. ASA 560 requires the auditor to perform audit procedures designed to obtain sufficient appropriate audit evidence that all events occurring between the date of the financial report and the date of the auditor's report that require adjustment of, or disclosure in, the financial report have been identified[53] and appropriately reflected in the financial report.[54] Because the measurement of many accounting estimates, other than fair value accounting estimates, usually depends on the outcome of future conditions, transactions or events, the auditor's work under ASA 560 is particularly relevant.

Testing How Management Made the Accounting Estimate (Ref. Para. 22)

A94.         Testing how management made the accounting estimate 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 appropriate.

           * The accounting estimate is based on a large population of items of a similar nature that individually are not significant.

           * The applicable financial reporting framework specifies how management is expected to make the accounting estimate. For example, this may be the case for an expected credit loss provision.

           * The accounting estimate is derived from the routine processing of data.

Testing how management made the accounting estimate may also be an appropriate approach when neither of the other testing approaches is practical to perform, or may be an appropriate approach in combination with one of the other testing approaches.

Changes in Methods, Significant Assumptions and the Data from Prior Periods (Ref: Para. 23(a), 24(a), 25(a))

A95.         When a change from prior periods in a method, significant assumption, or the data is not based on new circumstances or new information, or when significant