Wiley Practitioner's Guide to GAAS 2020

21AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures

Scope

Definitions of Terms

Objectives of AU-C Section 540

Overview

Requirements

Risk Assessment Procedures

Engaging a Specialist

Management’s Intent and Ability

Use of Collateral in Evaluating Fair Value

Auditor’s Responsibility

Evaluating Reasonableness

The Nature of Fair Value Measurements

Testing the Entity’s Estimates and Disclosures

Illustration—Examples of Accounting Estimates (from AU-C 540.A136)

Responding to the Assessed Risks of Material Misstatement

Reviewing Subsequent Events and Transactions

Disclosures

Written Representations

Communication with Audit Committees

Documentation

Management’s Responsibilities

Developing Accounting Estimates

SCOPE

AU-C 540 offers guidance on the auditor’s responsibilities related to estimates. It provides details on how to apply AU-C 315 and 330 and other relevant sections to auditing estimates, including fair value estimates and disclosures. Guidance is included on handling individual accounting estimates and indicators of management bias. (AU-C 540.01)

DEFINITIONS OF TERMS

Source: AU-C 540.07. For definitions related to this standard, see Appendix A, “Definitions of Terms”: Accounting estimate, Auditor’s point estimate or auditor’s range, Estimation uncertainty, Management bias, Management’s point estimate, Outcome of an accounting estimate.

OBJECTIVE OF AU-C SECTION 540

The objective of the auditor is to obtain sufficient ...