Page 65 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
make the accounting estimate.
Nature: The degree of estimation uncertainty can vary based on the nature of the accounting estimate.
Subjectivity: The subjectivity of the assumptions used to make the accounting estimate can also influence the
degree of estimation uncertainty.
Not all financial statement items requiring measurement at fair value, involve estimation uncertainty.
Not All: Not all financial statement items that require measurement at fair value involve estimation
uncertainty.
Reliable Market: Some financial statement items have an active and open market providing readily available
and reliable information on prices, which usually provides the best audit evidence of fair value.
Still Estimation Uncertainty: Despite well-defined valuation methods and data, estimation uncertainty may
still exist. For Example, Valuation of securities quoted on an active and open market may require adjustment if
the holding is significant in relation to the market or if there are restrictions in marketability. General
economic circumstances, such as market illiquidity, can impact estimation uncertainty.
Examples Of Situations Where Accounting Estimates, Other Than Fair Value Accounting Estimates, May
Be Required Include:
Asset Side (Shortcut DI R)
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Depreciation: The depreciation method or asset useful life may involve accounting estimates.
Investments: Provisions against the carrying amount of an investment may be needed where there is
uncertainty regarding its recoverability.
Inventory: Estimation may be required for inventory obsolescence.
Receivables: Allowance for doubtful accounts is an example of an accounting estimate.

Liability Side (Shortcut LOC)
Litigation: Financial obligations or costs arising from litigation settlements and judgments may involve
accounting estimates.
Obligations: Warranty obligations may require accounting estimates.
Contracts: The outcome of long-term contracts may require accounting estimates.
Examples Of Situations Where Fair Value Accounting Estimates May Be Required Include:
Asset Side
Disposal: Property or equipment held for disposal may necessitate fair value accounting estimates.
Complex financial instruments not traded in an active and open market: Fair value accounting estimates
may be required for complex financial instruments not traded in an active and open market.
Liability Side
Share-based payments: Share-based payments may require fair value accounting estimates.

Common Items
Business Combination: Certain assets or liabilities acquired in a business combination, including goodwill
and intangible assets, may require fair value accounting estimates.
Exchange of Assets or Liabilities: Transactions involving the exchange of assets or liabilities between
independent parties without monetary consideration may require fair value accounting estimates. An example
is a non-monetary exchange of plant facilities in different lines of business.

Estimation involves judgments:
Management Responsibility:
Involves Judgment: Estimation involves judgments based on information available when the financial
statements are prepared.
Require Assumptions: Many accounting estimates require making assumptions about matters that are
uncertain at t0068e time of estimation.
Not Auditors Responsibility:
Not Responsibility: The auditor is not responsible for predicting future conditions, transactions, or events

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