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Auditing Accounting Estimates (Possible Amendments to CAS 540) [ED]

Comment period ended on July 7, 2017 to the AASB and on August 1, 2017 to the IAASB

Proposed effective date:

The IAASB proposes that the revised ISAs be effective for audits of financial statements for periods ending approximately 18 months after the approval of the final ISAs. The revised CASs would have the same effective date as the revised ISAs. Auditors will be permitted to apply these revised CASs before the effective date.

Next steps:

The AASB expects to issue the final Handbook material in Q3/2018.

Last up­dated:

March 2018


Accounting estimates and related disclosures have become more complex. Stakeholders have indicated that clearer or additional guidance is needed to enable auditors to appropriately deal with these complexities.

As a result, the International Auditing and Assurance Standards Board (IAASB) has approved a project to revise ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures.  Corresponding changes, where appropriate, would be made to CAS 540, Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures.

The IAASB proposals include establishing more robust requirements and appropriately detailed guidance to foster audit quality. This would be done by driving auditors to perform appropriate procedures in relation to accounting estimates and related disclosures. It is anticipated that these revisions would also seek to emphasize the importance of the appropriate application of professional skepticism. 

The IAASB proposals also includes addressing the auditing issues arising from the adoption of Expected Credit Loss models under IFRS 9, Financial Instruments,  (The final version of IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Earlier application is permitted.) and certain other issues related to the audits of financial institutions.


Other Developments

November 2017

In November 2017, the AASB staff updated this project to indicate that the AASB expects to issue the final Handbook material in Q3/2018.

October 2017

On October 26, 2017, the AASB released an overview of the consultation activity focused on field testing the Exposure Draft, Auditing Accounting Estimates and Related Disclosures.

May 2017

On May 9, 2017, the AASB issued an Exposure Draft that proposes to adopt, with appropriate Canadian amendments if any, proposed amendments to ISA 540, and other conforming amendments. Stakeholders are encouraged to submit their comments by July 7, 2017.

April 2017

On April 20, 2017, the International Auditing and Assurance Standards Board (IAASB) issued an Exposure Draft on ISA 540 (Revised). Significant changes in how auditors evaluate accounting estimates and related disclosures have been proposed. Stakeholders are invited to provide comments by August 1, 2017.

In April 2017, the PCAOB staff announced that it is drafting a proposal for Board consideration in the second quarter of 2017.

January 2017

In January 2017, the staff of the AASB updated the information in respect of this project to advise that the AASB expects to issue an Exposure Draft in Q2/2017.

July 2016

On July 1, 2016, the PCAOB posted to its website an updated standard-setting agenda that outlines milestones on various standard-setting projects, including its project on Auditing Accounting Estimates, Including Fair Value Measurements. On August 19, 2014, the PCAOB issued a staff consultation paper to seek public comment on certain issues related to auditing accounting estimates, including fair value measurements. The PCAOB staff is evaluating the responses from commenters in addition to considering feedback received from the discussions at the October 2014 and June 2015 SAG meetings and the September 2015 IAG meeting. In addition, the staff is monitoring developments related to the IAASB’s project on Accounting Estimates (ISA 540) and Special Audit Considerations Relevant to Financial Institutions. The staff anticipates recommending that the Board propose for public comment revisions to its current standards on auditing accounting estimates, including fair value measurements, in the first quarter of 2017. For further information refer to the PCOAB’s Staff Consultation Paper: Auditing Accounting Estimates and Fair Value Measurements.

June 2016

In June 2016, the PCOAB provided an update on the standard governing accounting estimates and their staff is in close contact with the staff of the IAASB to monitor developments and share information. Because of the close link between standards governing fair value and estimates and standards governing the use of specialists (who often provide the information to establish fair values and estimates), the PCAOB is closely coordinating their projects on specialists and on fair value and estimates. They expect to issue proposals in these projects by the end of 2016.

April 2016

In April 2016, the staff of the AASB updated the information in respect of this project to advise that the AASB expects to issue an Exposure Draft in Q1/2017.

February 2016

In February 2016, the AASB staff set up a project in respect of this item.


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