This revised standard is the first to be completed as part of the IAASB’s broader program ‘Addressing the Fundamental Elements of an Audit’ and is an important part of the IAASB’s efforts to improve audit quality globally. Some of the significant revisions include:

• An enhanced risk assessment that requires auditors to consider complexity, subjectivity and other inherent risk factors in addition to estimation uncertainty. This will drive auditors to think more deeply about the risks inherent to accounting estimates.
• A closer link between the enhanced risk assessment and the methods, data and assumptions used in making accounting estimates, including the use of complex models.
• Specific material to show how the standard is scalable to all types of accounting estimates.
• Emphasis on the importance of applying appropriate professional skepticism when auditing accounting estimates to foster a more independent and challenging skeptical mindset in auditors.

ISA 540 (Revised) becomes effective for financial statement audits for periods beginning on or after December 15, 2019.

Review the press release and ISA 540 (Revised) on the IAASB's website.