Wiley Practitioner's Guide to GAAS 2023, 2nd Edition

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

• Technical Alert
• Scope
• Definitions of Terms
• Objective of AU-C 540
• Overview
• Requirements
  • Risk Assessment Procedures

TECHNICAL ALERT

The FASB has issued three standards that affect AU-C 540: SASs 143, 144, and 145. The changes from those standards are included in this chapter. See the preface to this volume for an overview of the new standards.

SCOPE

AU-C 540 offers guidance on the auditor's responsibilities related to estimates. It provides details on how to apply AU-C 315, 330, 450, 500, and other relevant sections to accounting estimates and related disclosures, including fair value estimates. ASC 540 also includes guidance on handling individual accounting estimates and indicators of management bias. (AU-C 540.01) Auditors must assess inherent and control risk separately for identified risks of material misstatements. Auditors should also be mindful of the guidance in AU-C 200 regarding inherent risk factors. Inherent risk factors influence inherent risk. Therefore, the level of inherent risk varies on a scale or spectrum of inherent risk. When the auditor does not intend to rely on internal controls, the auditor's assessment of control risk is that the assessment of the risk of material misstatement is the same as that of inherent risk. (AU-C 540.04)

DEFINITIONS OF TERMS

Source: AU-C 540.11. For definitions related to this standard, see Appendix A, “Definitions ...