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Gaurav Bhansali asked 1 year ago

M.r P Chanered Accountant in practice has been appointed as
Stannory Audit0r of XYZ Limited for the year 2019-2020. While carrying out risk assessment procedures and related activities for accounting estimates. Mr. P identified provision for warranty as an accounting estimate and considered it to be at signifiQant risk. Explain the matters that need to be evaluateded by Mr. P specifically with respect to estimate uncertainty.

1 Answers
RaviRavi Staff answered 1 year ago

The degree of estimation uncertainty associated with an accounting estimate may be influenced by factors such as:

Shortcut JST-OLD
1. The extent to which the accounting estimate depends on judgment.

2. The sensitivity of the accounting estimate to changes in assumptions.

3. The existence of recognised measurement techniques that may mitigate the estimation uncertainty (though the subjectivity of the assumptions used as inputs may nevertheless give rise to estimation uncertainty).

4. The extent to which the accounting estimate is based on observable or unobservable inputs.

5. The length of the forecast period, and the relevance of data drawn from past events to forecast future events.

6. The availability of reliable data from external sources.

The degree of estimation uncertainty associated with an accounting estimate may influence the estimate’s susceptibility to bias.

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