ACCA Audit and Assurance (F8) Practice Exam

What method could be used to gain assurance about management's significant assumptions in estimates?

1. Obtain verbal confirmations

2. Evaluate financial projections

3. Obtain written representations

4. Conduct random sampling

The correct answer is: Obtain written representations

Obtaining written representations from management is a vital method used to gain assurance about significant assumptions in estimates. This approach provides formal documentation that indicates the management's acknowledgment of their responsibilities and the validity of the assumptions used in financial statements. Written representations help establish clarity regarding the estimates made by management, such as those related to fair value calculations or provisions for liabilities. Written representations are considered strong evidence because they compel management to affirm that the information they provide is accurate and complete, and they can be referenced during the audit process. Such representations serve to confirm or clarify key assumptions that influence financial outcomes, enhancing the auditor's confidence in the estimates provided. This method complements other procedures, such as evaluating projections and conducting substantive tests, but distinctively emphasizes the accountability of management. By securing these representations, auditors can better assess the reasonableness of the assumptions underlying the estimates, thereby reinforcing the reliability of the financial statements.