The International Auditing and Assurance Standards Board (IAASB) has released International Standard on Auditing (ISA) 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. This revised standard adopts a risk-based approach to the audit of accounting estimates. It addresses the auditor's evaluation of the effect of estimation uncertainty on risk assessments, management's methods for making estimates, the reasonableness of assumptions used by management, and the adequacy of disclosures. ISA 540 (Revised and Redrafted) also expands the guidance on the use of models in valuations.
The revised standard combines ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures (Other Than Those Involving Fair Value Measurements and Disclosures), and ISA 545, Auditing Fair Value Measurements and Disclosures. ISA 540 (Revised and Redrafted) is effective for audits of financial periods beginning on or after December 15, 2009, and is available in full at http://www.ifac.org/store.
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