audit response: warranty provision and refund lability

It's the same principle that I attempted to explain here https://opentuition.com/topic/provisions-26 One of techniques for obtaining evidence about an accounting estimate (e.g. a warranty provision) is to see "how things turned out" - was the estimate enough? (i.e. not understated) or too much? (i.e. overstated) or "just right" (Goldilocks principle)?

i read through the attached post, tutor, but I am afraid am still not quite there. How does reviewing post-yr end claims/returns help in assessing reasonableness of mgt judgement. I mean auditor would hardly have data of 3-4months after the year end, in that small period what are they going to compare with what? and how?

Keeping it simple - management sells 1,000 units of a product a month for $50 with a warranty that if returned as faulty within 6 months of sale, it will be refunded under a "no-quibble guarantee". Management estimates, based on past experience that 3% of items will be returned so at 31 December makes a warranty provision for $9,000 (3% x 1,000 x $50 x 6 months). The company refunds $4,900, $3,300 and $4,100 in Jan, Feb, Mar ... does the provision look adequate to you?

This is bang on! Thank you so much:)) Sincere Regards,

You're welcome!