Preparing for ISA 540 (Revised) Auditing accounting estimates and related disclosures

Accounting estimates are increasingly common in financial statements and by their very nature are not always easy to audit. Audit inspection findings frequently identify the audit of estimates as an area that requires improvement. This is often because of the lack of audit evidence in the audit file, and particularly evidence of the audit team’s challenge of management’s judgements.

ISA 540 (Revised) Auditing accounting estimates and related disclosures was published in 2018 and is effective for audits of financial statements for periods beginning on or after 15 December 2019. It has been revised to address recent changes to financial reporting, such as changes in accounting for expected credit losses and revised IFRS standards dealing with insurance contracts, revenue recognition and leases, as well as to address audit quality issues in this area.

My October 2018 blog introduced the new standard and linked to an overview of the key changes and challenges.

Suffice to say ISA 540 (Revised) introduces more robust requirements, particularly geared towards addressing the audit of complex estimates but the standard is applicable to all estimates and, as a result, is expected to be scalable. The standard focuses on enhancing professional scepticism and communications and transparency between the auditor and those charged with governance. It also introduces some key changes and enhancements, particularly in relation to risk assessment and documentation.

The Audit and Assurance Faculty’s estimates web resource provides further information on the revised standard. We have a short webcast introducing the key enhancements and our recent webinar looked at some of the more practical – and challenging – implementation issues. We have also updated our four guides:

These provide helpful reminders, with practical examples, of what to think about when auditing estimates.

We would welcome your feedback on what we have done so far and what you consider to be a priority for our focus in this area going forward. Please leave a comment below or email the faculty at

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