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Deloitte comments on AICPA proposed SAS on auditing accounting estimates and related disclosures

Published on: Nov 21, 2019

Deloitte & Touche LLP comments on the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) on its proposed Statement on Auditing Standards (SAS), Auditing Accounting Estimates and Related Disclosures.

An excerpt from the comment letter is shown below:

We are supportive of the objectives of the ASB’s proposal to converge with the recently released International Standard on Auditing (ISA) 540 (Revised), Auditing Accounting Estimates and Related Disclosures (ISA 540 (Revised)), and are also supportive of the ASB’s efforts to consider the Public Company Accounting Oversight Board’s (PCAOB) recently adopted Auditing Standard (AS) No. 2501 (Revised), Auditing Accounting Estimates, Including Fair Value Measurements, and Amendments to PCAOB Auditing Standards (PCAOB Release No. 2018-005), and whether the requirements and guidance in this PCAOB standard could or should also be incorporated into the ASB’s proposed SAS to enhance audit quality for audits of nonissuers. Convergence to ISA 540 (Revised) brings the following integral concepts to the proposed SAS: 

• The enhancement and ability to provide for a more granular risk assessment process over accounting estimates, which will support the auditor’s efforts to drive targeted procedures that are responsive to the granular risk assessment, leading to improvements in the quality of our audit. This includes more focus on identifying the factors driving estimation uncertainty, complexity, and subjectivity and potential management bias, in addition to added emphasis for an auditor to understand the entity and its environment and internal control in relation to accounting estimates. Targeting the auditor’s work efforts based on their risk assessment, in particular focusing the auditor’s attention on those matters that are the most difficult to audit and particularly unique to the auditing of accounting estimates, is the appropriate way forward.

• The incorporation of scalability, specifically as it relates to how the requirements of the proposed SAS can be achieved depending on whether the accounting estimate is relatively simple or complex. Tailoring the extent of procedures will enable auditors to appropriately address the increasingly complex scenarios that arise from new accounting standards that include accounting estimates while also considering those more simplistic scenarios that exist for certain other accounting estimates. This will allow the auditor to appropriately execute on the requirements of the proposed SAS while also considering the nature and circumstances relevant to each individual accounting estimate. Demonstrating how auditors can achieve this level of scalability in the U.S. environment, particularly for simpler accounting estimates, through supplemental materials that include specific examples will be useful in the effective implementation of the proposed SAS.


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