Question

AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures states _______.

1) the objective of the auditor is to obtain sufficient appropriate evidence that accounting estimates are reasonable and disclosures are adequate
2) the objective of the internal auditor is to obtain sufficient appropriate evidence that accounting estimates are reasonable and disclosures are adequate
3) the objective of the auditor is to obtain sufficient appropriate evidence that accounting estimates are reasonable only
4) the objective of the auditor is to obtain sufficient appropriate evidence that disclosures are adequate only

Answer 1

The objective of the auditor is to obtain sufficient appropriate evidence that accounting estimates are reasonable and disclosures are adequate.The objective of the auditor as per AU-C Section 540 is to obtain evidence that both accounting estimates and disclosures are reasonable and adequate.

Step-by-step explanation:

The correct answer is 1) the objective of the auditor is to obtain sufficient appropriate evidence that accounting estimates are reasonable and disclosures are adequate.

AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures states that the primary objective of the auditor is to assess the reasonableness of accounting estimates made by management and ensure that the related disclosures in the financial statements are adequate.

This includes evaluating the methods used to develop the estimates, testing the data and assumptions underlying the estimates, and considering the inherent uncertainties involved in estimating certain financial amounts. By obtaining sufficient appropriate evidence, the auditor aims to provide reasonable assurance that the accounting estimates are not materially misstated and the disclosures are complete and transparent.