Accounting Estimates, Including Fair Value: Evaluating the Propriety of Areas with Uncertainty

Learning Objectives

• To describe typical areas of estimation and related audit risks.
• To explain how to link the assessed risk of material misstatement to a detailed audit plan.
• To discuss the importance of challenging management’s assumptions when auditing estimates.
• To describe fair value modeling techniques, including for non-readily marketable investments.
• To analyze how to properly evaluate the sufficiency and appropriateness of audit evidence and resulting conclusions when there is accounting uncertainty.

Course Description

Some financial statement items cannot be measured precisely, but can only be estimated. Such financial statement items are referred to as accounting estimates.

The nature and reliability of information available to management to support the making of an accounting estimate vary widely, which thereby affects the degree of estimation uncertainty associated with accounting estimates. The degree of estimation uncertainty affects, in turn, the risks of material misstatement of accounting estimates, including their susceptibility to unintentional or intentional management bias.

An accounting estimate is a measurement or recognition in the financial statements of (or a decision to not recognize) an account, disclosure, transaction, or event that generally involves subjective assumptions and measurement uncertainty. A fair value measurement is a form of an accounting estimate.

The objective of the auditor is to obtain sufficient appropriate evidence to determine whether accounting estimates in significant accounts and disclosures are properly accounted for and disclosed in the financial statements.

This CPE course will discuss tips and techniques for gathering sufficient appropriate audit evidence to support conclusions related to accounting estimates.

Major Topics Covered in this CPE Auditing Webinar:

• Identifying areas of estimation uncertainty, including fair value measurements
• Assessing the risk of material misstatement related to estimates, and testing the estimation process
• Financial Reporting Requirements
• Risk Assessment Procedures
• Understanding the Estimation Process and Relevant Internal Control
• Further Audit Procedures
• Challenging Data and Assumptions
• Developing a Point Estimate or Range
• The fair value measurement process, including non-readily marketable securities
• Applying audit procedures to common areas of estimation
• Evaluating the results of audit procedures for a possible audit adjustment

Overview

• Accounting estimates defined

  3 mins
• Audit objectives for estimates

  10 mins
• Relevant internal control over estimates

  26 mins
• Challenging underlying data and assumptions

  43 mins
• Narrowing a range estimate

  65 mins
• Smaller entity audit circusmstances

  88 mins