Accountant Essay

491 WordsSep 5, 20142 Pages
What is the auditors’ role in auditing estimates 01 This section provides guidance to auditors on obtaining and evaluating sufficient appropriate evidential matter to support significant accounting estimates in an audit of financial statements in accordance with generally accepted auditing standards. For purposes of this section, an accounting estimate is an approximation of a financial statement element, item, or account. Accounting estimates are often included in historical financial statements because— The measurement of some amounts or the valuation of some accounts is uncertain, pending the outcome of future events. Relevant data concerning events that have already occurred cannot be accumulated on a timely, cost-effective basis. .02 Accounting estimates in historical financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. Examples of accounting estimates include net realizable values of inventory and accounts receivable, property and casualty insurance loss reserves, revenues from contracts accounted for by the percentage-of-completion method, and pension and warranty expenses. fn 1 .03 Management is responsible for making the accounting estimates included in the financial statements. Estimates are based on subjective as well as objective factors and, as a result, judgment is required to estimate an amount at the date of the financial statements. Management's judgment is normally based on its knowledge and experience about past and current events and its assumptions about conditions it expects to exist and courses of action it expects to take. .04 The auditor is responsible for evaluating the reasonableness of accounting estimates made by management in the context of the financial statements taken as a whole. As estimates are based on subjective as well as objective

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