ASB addresses challenges in auditing accounting estimates

By Ken Tysiac

A proposal issued Thursday by the AICPA Auditing Standards Board (ASB) is intended to provide auditors with enhanced guidance on auditing accounting estimates.

The proposal is intended to address the challenges that auditors face when auditing accounting estimates by providing risk assessment requirements and further audit procedures that:

  • Are more specific to estimates, and
  • Address the increasingly complex business environment and complexity in financial reporting frameworks.

Proposed Statement on Auditing Standards (SAS), Auditing Accounting Estimates and Related Disclosures, is intended to enable auditors to appropriately address these scenarios and enhance the auditor’s focus on factors driving estimation uncertainty and potential management bias.

The ASB believes the proposal will help auditors exercise professional skepticism, improving audit quality as a result. If approved, the new standard would supersede SAS No. 122, Section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, and would amend other AU-C sections in the AICPA Professional Standards.

“The proposed standard breaks down the various aspects of management estimates, thus addressing one of the biggest challenges auditors face and allowing auditors to focus their efforts on unique aspects like subjectivity and estimation uncertainty,” AICPA Chief Auditor Bob Dohrer, CPA, CGMA, said in a news release. “The focus on unique aspects is intended to enhance the effectiveness of the auditor’s procedures as they relate to management estimates in general.”

Comments will be accepted through Nov. 22 and can be emailed to Sherry Hazel at Sherry.Hazel@aicpa-cima.com.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

SPONSORED REPORT

Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.

100th ANNIVERSARY

Black CPA Centennial, 1921–2021

With 2021 marking the 100th anniversary of the first Black licensed CPA in the United States, a yearlong campaign kicked off to recognize the nation’s Black CPAs and encourage greater progress in diversity, inclusion, and equity in the CPA profession.