What is Retrospective review of accounting estimates?
In short
The auditor reviews how prior-period accounting estimates turned out, or were later re-estimated, to understand management's estimation process and look for possible bias.
Key takeaways
- It is part of risk assessment and of the response to the risk of management override.
- Differences aren't necessarily errors; they may reflect new information.
- A pattern of estimates consistently favoring one direction suggests bias.
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?