Question

Examples of substantive procedures performed to test the reasonableness of accounting estimates include:

1) Inquiry about the method of measurement
2) Inquiry about assumptions used by management
3) Recalculate the accounting estimate
4) All of these answer choices are correct

Answer 1

Substantive procedures to test the reasonableness of accounting estimates in auditing include inquiry about the method and assumptions used for measurement, as well as recalculation of the estimate.

Step-by-step explanation:

The question pertains to the testing of the reasonableness of accounting estimates, which is an essential part of the financial audit process. Specifically, the procedures include inquiry about the method of measurement to understand how the estimate was determined, inquiry about assumptions used by management to evaluate the rationale behind the estimate, and recalculation to confirm the mathematical accuracy of the estimate. All of these procedures are intended to assess whether the accounting estimates made are reasonable and based on valid evidence. They form part of substantive procedures, which are actions taken by auditors to detect material misstatements in the financial statements.