What is Auditor's point estimate or range?
In short
To evaluate management's accounting estimate, the auditor can develop an independent point estimate or a range of reasonable amounts, narrowing the range to amounts supported by the audit evidence.
Key takeaways
- If management's estimate falls outside the auditor's range, the misstatement is at least the difference to the nearest end of the range.
- Estimates that are each reasonable but consistently at one end of the range may show management bias.
- Other approaches are testing management's process or using events up to the report date.
Where it's tested
AUD: Auditing Accounting Estimates — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
During the audit, the auditor notes that each of management's significant estimates falls within a reasonable range, but every one lands at the end of the range that maximizes reported income. How should the auditor evaluate this?