Lesson: Accounting Estimates

In this lesson, the focus is on accounting estimates as a key area where auditors should pay attention to management's disclosure. The discussion highlights how accounting estimates can be subjective and may carry a higher risk of fraud. To address this, auditors should assess if the estimates made by management are reasonable under the circumstances. The lesson outlines the process of evaluating estimates, which includes understanding how management develops these estimates, as well as procedures for the auditor to evaluate their reasonableness. The procedures involve using subsequent events, developing independent estimates, and reviewing management's process for developing the estimates. The lesson also incorporates the importance of communication with management and reporting any disagreements to those charged with governance.