Page 69 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
(CNO-SA540.140) Step 2: - Identifying and Assessing the Risks of Material Misstatements:
Evaluate Degree of Estimation Uncertainty: As per SA 315, the auditor evaluates the degree of estimation
uncertainty associated with accounting estimates while identifying and assessing the risks of material
misstatements.
Significant Risk Determination: The auditor determines whether any accounting estimates with high
estimation uncertainty pose significant risks.

(CNO-SA540.160) Step 3: - Responses to the Assessed Risks of Material Misstatement:
Based on the assessed risk of material misstatement the auditor shall determine:
1. Application of FRF: The auditor assesses whether management has correctly applied the relevant financial
reporting framework to the accounting estimate and whether the methods used to make these estimates are
appropriate and consistently applied.
2A. Data Verification: The auditor conducts check to verify the data used by management to make the
accounting estimate. The auditor tests the accuracy, completeness, and relevance of the data upon which the
accounting estimate is based and recalculates the accounting estimate for internal consistency.
2B. Measurement Method & Assumption: The auditor evaluates whether the method used to measure the
accounting estimate is appropriate given the circumstances and assesses if the assumptions made by
management align with the measurement objective of the applicable financial reporting.
3. Control Effectiveness: The auditor checks the effectiveness of the controls over the estimates used by
management.
4. Specialized Skills or Knowledge: The auditor considers whether specialized skills or knowledge are
required in relation to any aspects of the accounting estimates to obtain sufficient and appropriate audit
evidence.

(CNO-SA540.180) Step 4: - Evaluating the Reasonableness of the Accounting Estimates, and Determining
Misstatements:
Reasonableness Evaluation: The auditor assesses the reasonableness of accounting estimates in the financial
statements based on the audit evidence.
Misstatement Determination: The auditor identifies any inaccuracies or misstatements in the financial
statements.

(CNO-SA540.200) Step 5: - Disclosures Related to Accounting Estimates
Requirements of Applicable FRF: The auditor shall obtain sufficient appropriate audit evidence about
whether the disclosures in the financial statements related to accounting estimates are in accordance with the
requirements of the applicable financial reporting framework.
For Significant Risk Adequacy of Disclosure: For accounting estimates that give rise to significant risks, the
auditor shall also evaluate the adequacy of the disclosure of their estimation uncertainty in the financial
statements in the context of the applicable financial reporting framework
(a)General Disclosures given by FRF
1. Assumptions: The disclosure should include the assumptions employed in the financial statements'
preparation.
2A. Estimation Method: The disclosure should detail the method of estimation utilized, inclusive of any
relevant model.
2B. Method Changes: Any alterations in the estimation method from the previous period, along with their
subsequent impact on the financial statements, should be disclosed.
2C. Method Selection Basis: The rationale behind the choice of the estimation method should be clarified.
3. Estimation Uncertainty: The disclosure should address the sources and implications of estimation
uncertainty.
(b)Disclosure Requirement in case of Significant Risk
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