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AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures

AU-C ORIGINAL PRONOUNCEMENT

Original Pronouncement

Statement on Auditing Standards (SAS) 122.

DEFINITIONS OF TERMS

Source: AU-C 540.07

Accounting estimate. An approximation of a monetary amount in the absence of a precise means of measurement. This term is used for an amount measured at fair value when there is estimation uncertainty, as well as for other amounts that require estimation. When this section addresses only accounting estimates involving measurement at fair value, the term fair value accounting estimates is used.

Auditor's point estimate or auditor's range. The amount or range of amounts, respectively, derived from audit evidence for use in evaluating the recorded or disclosed amount(s).

Estimation uncertainty. The susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in its measurement.

Management bias. A lack of neutrality by management in the preparation and fair presentation of information.

Management's point estimate. The amount selected by management for recognition or disclosure in the financial statements as an accounting estimate.

Outcome of an accounting estimate. The actual monetary amount that results from the resolution of the underlying transaction(s), event(s), or condition(s) addressed by the accounting estimate.

OBJECTIVE OF AU-C SECTION 540

AU-C 540.06 states that:

… the objective of the ...