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13 Dec. 2018

AUASB issues Revised ASA 540 Auditing Accounting Estimates and Related Disclosures

The AUASB has released the revised ASA 540 Auditing Accounting Estimates and Related Disclosures with the operative date being for financial reporting periods commencing on or after 15 December 2019.  Early adoption is permitted prior to this date.

The AUASB’s changes in revising ASA 540 Auditing Accounting Estimates and Related Disclosures, reflect revisions made by the International Auditing and Assurance Standards Board to ISA 540 Auditing Accounting Estimates and Related Disclosures. The revised auditing standard addresses issues arising from evolving financial reporting frameworks, particularly the move to accounting for financial instruments on an expected loss basis which is of particular significance for banks and major financial institutions.
 
The revised ASA 540 will ensure the quality of auditing of management estimates and disclosures in Australia keeps pace with developments in financial reporting. This has evolved to be more forward looking, leading to an increase in the volume and complexity of accounting judgements and related disclosures.
 
The revised standard requires better risk assessment and greater work effort on the part of auditors, who will also need to apply a higher benchmark in assessing the adequacy of disclosures. This will not only be important to financial services audits when auditing expected credit losses, but also in dealing with other new accounting standards such as the recently released revenue recognition and insurance contracts standards, where applicable.  The revised auditing standard is expected to impact all engagements which have accounting estimates that need to be audited.

The AUASB also releases Auditing Standard ASA 2018-1 Amendments to Australian Auditing Standards, containing conforming and consequential amendments arising as a result of revisions to ASA 540, particularly with reference to ASA 500 Audit Evidence

Document Links:
ASA 540 Auditing Accounting Estimates and Related Disclosures
ASA 2018-1 Amendments to Australian Auditing Standards