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ISA (UK) 540 (Revised): scalability and audit of accounting estimates

The revised international auditing standard, ISA (UK) 540 (Revised) Auditing Accounting Estimates and Related Disclosures, attempts to improve scalability issues and treatment of accounting estimates as more complex forward analysis becomes available for financial reporters. Michelle Roberts CA, specialist audit writer at Croner-i Tax and Accounting, considers the judgment issues for auditors

There has been an increased use of accounting estimates by companies as they become more complex and technology makes forward looking information more accessible. This has resulted in a stronger regulator focus on accounting estimates.

The Financial Reporting Council (FRC) recently raised concerns over audit quality in this area in its Corporate Reporting Thematic Review, issued in October 2018.

To combat these concerns, the FRC has also issued ISA (UK) 540 (Revised) Auditing Accounting Estimates and Related Disclosures, effective for audits of financial statements for periods beginning on or after 15 December 2019, with early adoption permitted.

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