Audit Case - RedPack Beer Company
1. CAS 540 listed the following requirements related to auditing accounting estimates:
When performing risk assessment procedures and related activities to obtain an understanding of the client and its environment, the auditor shall obtain an understanding of the following:
The requirements of the applicable financial reporting framework relevant to accounting estimates, including related disclosures
How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements. And the auditor shall make inquiries of management regarding changes in circumstances that may give risk or new or the need to revise existing, accounting estimates.
How management makes the accounting estimates, and an understanding of the data on which they are based, including the method, relevant controls, the use of an expert, the assumptions underlying, the change in the methods adopted and the reason for the change, plus how management has assessed the effect of estimation uncertainty.
The auditor shall review the outcome of accounting estimates included in the prior period financial statements, or, where applicable, their subsequent re-estimation for the purpose of the current period. The nature and extent of the auditor's review takes account of the nature of the accounting estimates, and whether the information obtained from the review would be relevant to identifying and assessing risks of material misstatement of accounting estimates made in the current period financial statements. However, the review is not intended to call into question the judgments made in the prior periods that were based on information available at the time.
In identifying and assessing the risks of material misstatement, the auditor shall evaluate the degree of estimation uncertainty associated with an accounting estimate. The auditor shall determine whether, in the auditor's judgment, any of those
When performing risk assessment procedures and related activities to obtain an understanding of the client and its environment, the auditor shall obtain an understanding of the following:
The requirements of the applicable financial reporting framework relevant to accounting estimates, including related disclosures
How management identifies those transactions, events and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements. And the auditor shall make inquiries of management regarding changes in circumstances that may give risk or new or the need to revise existing, accounting estimates.
How management makes the accounting estimates, and an understanding of the data on which they are based, including the method, relevant controls, the use of an expert, the assumptions underlying, the change in the methods adopted and the reason for the change, plus how management has assessed the effect of estimation uncertainty.
The auditor shall review the outcome of accounting estimates included in the prior period financial statements, or, where applicable, their subsequent re-estimation for the purpose of the current period. The nature and extent of the auditor's review takes account of the nature of the accounting estimates, and whether the information obtained from the review would be relevant to identifying and assessing risks of material misstatement of accounting estimates made in the current period financial statements. However, the review is not intended to call into question the judgments made in the prior periods that were based on information available at the time.
In identifying and assessing the risks of material misstatement, the auditor shall evaluate the degree of estimation uncertainty associated with an accounting estimate. The auditor shall determine whether, in the auditor's judgment, any of those