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With respect to accounting estimates, both the AICPA and PCAOB require the auditors to make three...

With respect to accounting estimates, both the AICPA and PCAOB require the auditors to make three determinations.

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These are the three determinations that the auditors are required to do for auditing accounting estimates.

(i) The auditor should identify all the accounting estimates that are material to the financial statements.

(ii) The basis of the accounting estimates should be reasonable for the particular accounting cycle. It should be on past experience or best expected possibility as determined by the management.

(iii) The accounting estimates used in the financial statements should be in line with the accounting principles and should be properly disclosed in the financial statements.

The above determination requires the auditor to consider the industry in which the entity operates, the way in which entity is conducts its business, some other factors etc.

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