Page 147 - AAA Integrated Workbook STUDENT S18-J19

Evidence

Estimates and fair values

5.1 Examples of estimates and fair values in the financial statements

 Defined benefit pension schemes

 Share based payment schemes

 Investments in property or shares

 Property within PPE if the revaluation model is used

 Net assets of a subsidiary at the acquisition date.

5.2 Risk assessment

The auditor should consider:

 How management identifies transactions and balances requiring estimation
such as fair values and financial instruments.

 How management makes the estimates including:

– models used

– relevant controls (control environment, risk management processes,
information systems, documented system of internal control, appropriate
accounting policies)

– use of an expert

– assumptions underlying the estimates

– changes since the prior period

– how management assesses the effect of uncertainty.

 Whether the valuation techniques are commonly used by other market
participants.

 The competence and objectivity of those responsible for the valuations.

 The outcome of estimates made in the past.

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