SAS No. 22 Audit of Accounting Estimates

Status

Issued by Auditing Standards Committee in Taiwan on 16 June, 1992.

Summary

The auditor should obtain sufficient appropriate audit evidence regarding accounting estimates. Accounting estimate means an approximation of the amount of an item in the absence of a precise means of measurement. Management is responsible for making accounting estimates included in financial statements.

The auditor should design and perform further audit procedures to obtain sufficient appropriate audit evidence as to whether the entity’s accounting estimates are reasonable in the circumstances and, when required, appropriately disclosed.

The principal audit procedures for accounting estimates are:

• Evaluation of the data and consideration of assumptions on which the estimate is based;
• Testing of the calculations involved in the estimate;
• Comparison, when possible, of estimates made for prior periods with actual results of those periods; and
• Consideration of management’s approval procedures.
• Evaluation of results of audit procedures.

In evaluating the assumptions on which the estimate is based, the auditor would consider, among other things, whether they are:

• Supported by sufficient and appropriate information.
• Reasonable in light of actual results in prior periods;
• Consistent with those used for other accounting estimates; and
• Consistent with management’s plans which appear appropriate.

When possible, the auditor would compare accounting estimates made for prior periods with actual results of those periods to assist in:

• Obtaining audit evidence about the general reliability of the entity’s estimating procedures and methods, including relevant control activities;
• Considering whether adjustments to estimating formulae may be required; and
• Evaluating whether differences between actual results and previous estimates have been quantified and that, where necessary, appropriate adjustments or disclosures have been made.

Material accounting estimates are ordinarily reviewed and approved by management. The auditor would consider whether such review and approval is performed by the appropriate level of management and that it is evidenced in the documentation supporting the determination of the accounting estimate.

Transactions and events which occur after period end, but prior to completion of the audit, may provide audit evidence regarding an accounting estimate made by management.

The auditor should make a final assessment of the reasonableness of the entity’s accounting estimates based on the auditor’s understanding of the entity and its environment and whether the estimates are consistent with other audit evidence obtained during the audit.

Effective date

This Statement is effective for audit of financial statements with fiscal years ending on or after 31 December, 1992.