AUD | Auditing Fair Value and Other Accounting Estimates

Howard B. Levy, CPA

A basic postulate of financial accounting is that timely financial reporting requires the use of estimates. And it is a fact that all accounting estimates, more or less, inherently involve a degree of subjectivity, complexity, and uncertainty—some considerably more than others. Therefore, estimates are not expected to be right; rather, it is the auditor's job to be comfortably assured that, when made, they were based on the best information available, reasonably supportable assumptions, and sound methodology. The estimates should be revisited and revised as necessary in future reporting periods based on new information. Auditors are always supposed to bring to the table an appropriate level of knowledge of the business and the industry when assessing estimates.