26 April 2017

FRC: IAASB consults on revised proposals for auditing accounting estimates

The IAASB is consulting on a proposal to revise its standard for the audit of accounting estimates and related disclosures. The FRC is seeking views on the IAASB’s revised proposals from UK stakeholders.

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 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.

Comments are due by August 1, 2017

Full press release

Consultation paper

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