Audit of accounting estimates
An audit of an accounting estimate considers estimation uncertainty, complexity, subjectivity and potential management bias. The auditor designs procedures responsive to assessed risks, which may include testing management’s process, evaluating subsequent events or developing an independent point estimate or range.
Worked example
For a warranty provision, the auditor tests historical claims data and challenges management’s forecast failure rates.
Common mistake
Do not accept an estimate merely because management provided a calculation; assumptions, data and disclosures must also be evaluated.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AA | Direct | September 2026–June 2027 |
| ACCA | AAA (INT) | Direct | September 2026–June 2027 |