Meaning of the above line and
What does management do if the estimates prove to be wrong in actual situation?
High Estimation uncertainty means chances that there can be large difference between estimated amount and actual outcome. So now how we can find out how much difference can we expect is called “effect of estimation uncertainty”
it can be done by following ways
—Review prior period estimates, what was difference between last years estimate actual outcome in current year
—See what are alternative assumptions and what is there outcome (so sensitivity analysis like in SFM, % change in NPV because 1% change in factors)
— Analyse differences between various alternative outcomes possible
Please comment exact question and its source & answer so that i can guide you further.
Further estimates can always go wrong, but we have to analyse whether it was intentional or unintentional . if it was intentional then original estimates were misstated and needs rectification
Pg no 1.184(notes) :
risk assesment procedure and related activities:
Point (c) subpoint (6)
Wheather and if so how the management has assesed the effects of estimation uncertainty.