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Accountancy Europe acknowledges that ISA 540 is an important standard which deals with various issues. Accountancy Europe recognises IAASB’s effort to provide sufficient guidance in the diverse circumstances in which ISA 540 should apply, ranging from simple accounting estimates to very complex ones. Accounting estimates are one of the major issues identified globally in regulatory audit inspections, specifically around the lack of auditor challenge and apparent shortcomings in the application of professional scepticism.
The introduction explains that accounting estimates are subject to inherent limitations, which means that it is impossible for either preparers or auditors to reduce estimation uncertainty beyond certain limits. This statement should be more explicitly linked to the requirements in the standard, in particular related to the resulting challenge for preparers and the auditor in relation to such measurement uncertainty.
Accountancy Europe is also aware of concerns expressed in the past that a narrow-scoped ISA 540 could result in auditors overlooking some accounting estimates that ought to be addressed in a specific way, if auditors erroneously would assess the ISA 540 standard as not applicable to individual client circumstances. The IAASB should make sure this is considered as part of the revision of ISA 315.