Measuring accounting estimates involves some level of uncertainty. As a result, accounting estimates — such as allowances for doubtful accounts, impairments of long-lived assets, and valuations of financial and nonfinancial assets — require extra attention from auditors. Here’s a closer look at the current standards for auditing estimates and examples of specialists who may be hired to provide independent estimates.
Applying the auditing standards
Some estimates may be easily determinable, but many are inherently subjective or complex. Auditing standards generally provide three approaches for substantively testing fair value measurements and other accounting estimates:
Independence guidelines generally prohibit auditors from providing certain services for their public audit clients. To obtain independent accounting estimates, companies often turn to outside specialists.
Relying on specialists
Examples of specialists used to prepare accounting estimates include:
Auditors often help direct these specialists to minimize the risk of misstatement, especially when specialists aren’t subject to the audit firm’s training, resources and quality control systems.
Business transactions have grown more complicated in recent years, leading companies to make a significant number of subjective estimates and rely more heavily on outside parties to bring in specialized knowledge. We understand how to apply the auditing standards to accounting estimates made in-house and/or using outside specialists. Contact us for additional information.