ACCA Audit and Assurance (F8) Practice Exam

Which of the following is a key reason to assess management assumptions in accounting estimates?

1. To ensure accuracy in books

2. To maintain auditor independence

3. To understand risks associated with estimates

4. To align with regulatory requirements

The correct answer is: To understand risks associated with estimates

Assessing management assumptions in accounting estimates is critical primarily to understand the risks associated with those estimates. Accounting estimates often involve judgment, and the underlying assumptions can have a significant impact on the financial statements. By evaluating these assumptions, auditors can identify areas where there may be a higher risk of misstatement due to estimation uncertainty or management bias. This enables the auditor to plan their procedures effectively to address these specific risks and enhance the reliability of the financial statements. In contrast, other options, while relevant to the audit process, do not capture the principal reason for assessing management assumptions in the same way. Ensuring accuracy in the books is typically a result of broader audit procedures and does not specifically address the unique elements of management's judgment in estimates. Maintaining auditor independence is essential but more focused on the auditor's objectivity and relationship with the client, not the assessment of management's estimates. Aligning with regulatory requirements is critical for compliance, but it is not the primary driver for evaluating management's assumptions. Understanding risks associated with accounting estimates is fundamentally tied to the auditor's responsibility to provide a true and fair view of the financial records.