ACCA Audit and Assurance (F8) Practice Exam

What should be considered in audit procedures for accounting estimates?

1. Reasonableness of assumptions and management bias

2. External validation and market trends

3. Accounting frameworks and compliance regulations

4. Historical data and internal controls

The correct answer is: Reasonableness of assumptions and management bias

In the context of audit procedures for accounting estimates, focusing on the reasonableness of assumptions and management bias is essential. Accounting estimates often rely on management's judgments and assumptions about future events, which can significantly affect financial statements. Auditors need to assess whether these assumptions are realistic and supported by relevant data. Evaluating management bias is crucial because it helps identify potential misstatements that could arise from overly optimistic or pessimistic assumptions. By ensuring that the assumptions are reasonable, auditors can enhance the reliability of the estimates and, consequently, the overall financial statements. It is part of the auditor's responsibility to scrutinize these areas to mitigate the risk of material misstatements. While external validation and market trends, accounting frameworks and compliance regulations, as well as historical data and internal controls are important components of auditing, they do not specifically address the complexities involved in assessing management's assumptions and potential bias in their estimates. These other aspects can inform the audit procedure, but the core focus on management's reasoning and the potential for bias directly impacts the reliability of the estimates made in the financial statements.