CONSIDERING SPECIFIC

FINANCIAL STATEMENT ITEMS

 ACCOUNTING ESTIMATES
• AN APPROXIMATION OF A MONETARY AMOUNT IN THE ABSENCE OF A PRECISE MEANS OF
MEASUREMENT. THIS TERM IS ALSO USED FOR AN AMOUNT MEASURED AT FAIR VALUE WHERE
THERE IS ESTIMATION UNCERTAINTY.

• MANY ITEMS IN F/S HAVE TO BE ESTIMATED DUE TO UNCERTAINTIES INHERENT IN A BUSINESS.

SUCH ESTIMATES RANGE FROM SIMPLE CALCUATIONS EXAMPLE, (NET REALIZABLE VALUE OF
INVENTORY AND DEPRECIATION OF PROPERTY,PLANT, AND EQUIPMENT) TO COMPLEX ONES
(CALCULATING FAIR VALUE OF CMPLEX DERIVATIVE INSTRUMENTS AND ACTUARIAL VALUATION
OF RETIREMENT BENEFITS.) HENCE, ACCOUNTING ESTIMATES INHERENTLY PRESENT HIGHER
ROMM THAT COULD EVEN BE CONSIDEREDSIGNIFICANT RISKS
 RESPONSIBILITY FOR ACCOUNTING ESTIMATES

• MANAGEMENT IS RESPONSIBLE FOR MAKING ACCOUNTING ESTIMATES THAT ARE

REASONABLE WHEN PREPARING AND PRESENTING F/S.

AUDITING ACCOUNTING ESTIMATES

THE AUDITOR SHOULD OBTAIN SUFFICIENT APPROPRIATE EVIDENCE ABOUT WHETHER

A. ACCOUNTING ESTIMATES IN IN F/S ARE REASONABLE AND

B. RELATED DISCLOSURES IN F/S ARE ADEQUATE

EXHIBIT 15.1- AUDITING ACCOUNTIG ESTIMATES
RISK ASSESSMENT
OBTAIN UNDERSTANDING
TO IDENTIFY AND ASSESS
ROMM
REVIEW OF ACTUAL
OUTCOME OF
ESTIMATES PREPARED
IN PREVIOUS PERIODS
EVALUATE DEGREE OF
ESTIMATION
UNCERTAINT AND
SIGNIFICANT RISKS
CONCLUSION AND
RISK RESPONSE
REPORTING
PERFORM OBTAIN WRITTEN REPRESENTATIONS
APPROPRIATE ABOUT REASONABLENESS OF
RESPONSES ESTIMATES AND MANAGEMENT’S
INTENT AND ABILITY TO CARRY OUT
SPECIFIC ACTIONS
USE WORK OF AN
AUDITOR’S EXPERT
EVALUATE AUDIT EVIDENCE
PERFORM ADDITIONAL
AND MISSTATEMENT FOR
PROCEDURES FOR
REASONABLENESS OF
SIGNIFICANTRISKS
ACCOUNTING ESTIMATES.
RELATING TO
ACCOUNTING
ESTIMATES. DOCUMENT FINDING AND
RESULTS
EVALUATE POSSIBLE
MANAGEMENT BIAS.
RISK ASSESSMENT
OBTAIN UNDERSTANDING TO IDENTIFY AND ASSESS ROMM

OBTAIN UNDERSTANDING OF ESTIMATION PROCESS TO IDENTIFY AND ASSESS THE ROMM,SUCH AS;

1. REQUIREMENTS OF AFRF
2. CIRCUMSTANCES THAT INVOLVE ACCOUNTING ESTIMATES
3. MODEL/METHODOLOGY (AS WELL AS CHNAGES THERE IN), D&I OF RELEVANT CONTROLS,USE OF
MANAGEMENTS’S EXPERT, ASSUMPTIONS USED,AND UNCERTAINTY INVOLVED

REVIEW OUTCOMES OF ESTIMATES PREPARED IN PREVIOUS PERIODS

THIS IS ALSO KNOWN AS RETROSPECTIVE REVIEW. THIS HELPS AUDITOR TO UNDERSTAND:

• EFFECTIVENESS (OR NOT) OF MANAGEMENT’S ESTIMATION PROCESS;
• EXISTENCE OF ANY POSSIBLE MANAGEMENT BIAS 9A POSSIBLE FRAUD);
• EXISTENCE OF PERTINENT AUDIT EVIDENCE;AND
• EXTENT OF ESTIMATION UNCERTAINTY INVOLVED (MAY BE A REQUIRED F/S DISCLOSURE).
Evaluate degree of estimation uncertainty and significant risks

Estimation uncertainty refers to the susceptibility of an accounting estimate and

related disclosures to an inherent lack of precision in its measurement. In identifying
and assessing ROMM, the auditor shall evaluate the degree of estimation
uncertainty involved.

Accounting estimates that have high estimation uncertainty may give rise to
significant risks. Examples include those highly dependent upon judgment (e.g.,
outcome of litigation), sensitive to changes in assumptions, susceptible to bias,
dependent on uncertain events many years in the future, not calculated using
recognized techniques or unobservable inputs, retrospective review indicates a
substantial difference, and fair value estimates of derivative instruments that are
not publicly traded.
Risk Response
Perform Appropriate Responses
Auditor’s responses determine whether AFRF has been appropriately applied and methods are
appropriate and applied consistently, to wit:
1. Review subsequent events up to auditor’s report.
2. Test management’s estimation process.
3. Test relevant controls over accounting estimates, and perform SP.
4. Develop independent estimate and compare with management’s estimate.
Use Work of an Auditor’s Expert
The auditor should consider whether specialized skills or knowledge in relation to accounting
estimates are required in order to obtain sufficient appropriate evidence. For example, in
defined benefit plans, the auditor may use the work of an actuary to test management
assumptions and process in calculating retirement benefits.
Perform Additional Responses
The auditor shall evaluate:
a. How management addressed estimation uncertainty.
b. Whether significant assumptions are reasonable
c. Where relevant, management’s intent and ability to carry out specific actions.
Evaluate Possible Management Bias

The auditor shall

* Identify whether there are indicators of possible management bias such as
changes in estimates calculation and pattern of optimism or pessimism.
* Consider the cumulative effect of management’s bias.
Conclusion and reporting

Evaluate Audit Evidence and Misstatement for Reasonableness of

Estimates
*The accounting estimates are either reasonable or misstated based
on audit evidence.

Document Findings and Result

The auditor shall document:
*References to relevant PSAs and AFRF;
*Consultations with experts;
*Considerations of contradictory or inconsistent audit evidence ; and
* Challenges that were raised an alternative positions and assumptions considered.
Related Parties
PAS 24, Related Parties, establishes specific disclosure requirements for related party relationships,
transactions, and balances. This enables the users of F/S to understand the nature and effects on the
F/S of related parties.

Responsibility for Sufficient Disclosures of Related

Parties
Management is responsible for appropriate accounting
for and disclosure of related party relationships and
transactions.

Auditor’s Objectives in auditing Related Parties

The auditor shall obtain evidence about the sufficiency
and appropriateness of related party disclosures.
 Exhibit 15.2 AUDITING Related Parties
Risk Assessment
Perform RAP to identify and
assess ROMM, including
significant risks and fraud risks.
Remain alert for indication of
related parties when inspecting
records or documents.
Risk Response
Perform FAP to obtain evidence
about ROMM of related parties.
Perform additional procedures for
significant related party
transactions outside the normal
course of business.
Obtain evidence about assertion
that related party transactions
are arm’s length transactions.
Conclusion and Reporting
Obtain written representations
about completeness of
accounting and disclosures of
related parties in the F/S
Document results and
findings.
Form auditor’s opinion.
Risk Assessments
Perform RAP to Identify and Assess ROMM, Including Significant Risks and Fraud Risks
The Auditor shall perform RAP aimed to obtain information relevant to identify
ROMM associated with related parties, and whether such risks are significant risks or
due to fraud.

Such procedures shall include engagement team discussion and inquiry of

management regarding the:
a. Identify of related parties, including changes from the prior period;
b. Nature of related party relationships; and
c. Type and purpose of related transactions.

The auditor shall inquire of management and others within the entity, and perform
other RAP to obtain an understanding of internal controls that:
a. Identify, account for, and disclose elated parties; and
b. Authorize and approve transactions with related parties; and
c. Authorize and approve transactions outside the normal course of business.
Remain alert for Indication of Related Parties when Inspecting Records or Documents

The auditor shall inspect the following for indications of related parties:
a. Bank and legal confirmations obtained as part of the auditor’s procedures;
b. Minutes of meetings of shareholders and of TCWG; and
c. Such other records or documents as the auditor considers necessary in the
circumstances of the entity , such as SEC filings, conflict of interest statements,
pensions, other trusts, and identify officers thereof, etc.

Transactions that indicate the existence of related parties may include:

• Borrowing or lending at rates significantly different from market rates
• Business with major customers, suppliers, etc.
• Other unusual transactions