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News April 2017 IAASB consults on revised proposals for auditing accounting estimates

IAASB consults on revised proposals for auditing accounting estimates

26 April 2017

The International Auditing and Assurance Standards Board (IAASB) is consulting on a proposal to revise its standard for the audit of accounting estimates and related disclosures (ED-540). The proposal will apply to the audit of all accounting estimates and has been developed to support the audit of expected credit losses in banks following the introduction of revised accounting standards.


Auditors will need to fulfil more stringent requirements when signing off ‘accounting estimates’ in company accounts. References to various accounting estimates, soon to include expected credit losses in banks, are often used in company reports for some of the largest UK and global entities, and are among the most difficult, complex and challenging parts to audit. The Financial Reporting Council (FRC) is seeking views on the IAASB’s revised proposals from UK stakeholders.

The revised audit approach mandates an enhanced risk assessment, and increased work to determine the effect on an estimate of uncertainty, complexity and judgements taken by management. It will also require the auditor to apply greater professional scepticism, and to carry out a further final review of the audit work in connection with the estimate before the audit is completed. Less detailed procedures apply when the risk of material misstatement is low.

The FRC will respond to the IAASB’s consultation later this year and expects in due course to update its UK standard in line with the IAASB’s final standard. To inform the FRC’s response there will be a series of round table meetings to gather stakeholder views. If you would like to be invited please email Paula Cooke on p.cooke@frc.org.uk. We are also happy to receive written comments sent to aat@frc.org.uk.

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