Final answer:
Accounting estimates inherently involve subjective decision making on the part of management, based on their judgment and assumptions regarding future events. While auditors review these estimates for reasonableness, it is the management's responsibility to make them, and they may require adjustments if new information becomes available.
Step-by-step explanation:
Accounting estimates, by their nature, involve subjective decision making on the part of management. This is because making accounting estimates requires judgment and assumptions about uncertain future events. For example, estimating the useful life of an asset for depreciation purposes or determining the allowance for doubtful accounts involves significant managerial judgment. Such estimates are inherently subjective as they depend on management's expectations of future events, which can be influenced by their experience and insight into the company's operations.
It is also important to note that accounting estimates should be based on the best information available and should be updated if new information becomes available. Moreover, while some degree of variance is expected in estimates, they should be as accurate as possible to reflect the true financial status of the business.
Auditors play a role in this process by reviewing management's estimates and the assumptions behind them to assess their reasonableness. However, the responsibility for making the estimates lies with management, not the auditors. Over time, actual results may differ from estimates, which may require adjustments to the financial statements.