United States

Proposal: Auditing accounting estimates


The Auditing Standards Board (ASB) recently issued a proposed Statement on Auditing Standards (SAS), Auditing Accounting Estimates and Related Disclosures. The proposed standard is intended to enable auditors to appropriately address the increasingly complex scenarios that arise from new accounting standards that include estimates and related disclosures and to enhance the auditor’s focus on factors driving estimation uncertainty and potential management bias. In revising its standards, the ASB used as a base International Standard on Auditing 540 (Revised), Auditing Accounting Estimates and Related Disclosures.

Fundamental aspects of the proposed SAS include the following, among others:

  • Guidance on how its requirements can be scaled for all types of accounting estimates, from those that are relatively “simple” to those that are complex
  • A required separate assessment of inherent risk and control risk for purposes of assessing the risks of material misstatement at the assertion level for accounting estimates
  • Risk assessment requirements that are more specific to estimates and that address the increasingly complex business environment and complexity in financial reporting frameworks
  • An emphasis on the need for further audit procedures (including, when appropriate, tests of controls) to be responsive to the reasons for the assessed risks of material misstatement at the assertion level, taking into account the effect of one or more inherent risk factors and the auditor’s assessment of control risk
  • A requirement to evaluate, based on the audit procedures performed and the audit evidence obtained, whether the accounting estimates and related disclosures are reasonable in the context of the applicable financial reporting framework or are misstated

If finalized, the proposed SAS would be effective for audits of financial statements for periods ending on or after December 15, 2022. The proposed SAS is available for comment until November 22, 2019.