Final answer:
Auditors must communicate details about accounting estimates to governance bodies because these estimates can significantly affect financial statements, involve subjectivity, and are crucial for accurate portrayal of a company's financial health.
Step-by-step explanation:
It is important that auditors communicate information about accounting estimates to those in charge of governance for several reasons.
First, future events can significantly affect accounting estimates, introducing risks that may impact the reported financial position and results.
Second, the process of making accounting estimates involves a degree of subjectivity and the use of assumptions, which need careful judgment and oversight.
Third, accounting estimates can be highly significant to the overall portrayal of a company's financial statements, highlighting the necessity for transparency and accuracy in these estimates.
An auditor's duty is to ensure that the financial statements are free of material misstatement, whether caused by error or fraud. As such, they must assess the reasonableness of the accounting estimates made by management, considering the methods, assumptions, and data used. Communicating these assessments helps those charged with governance understand the degree of uncertainty associated with the estimates and the potential impact on the financial statements. The communication process aids in enhancing the overall corporate governance structure, as learned from the case of Lehman Brothers, where corporate governance failed to provide accurate financial information to investors.