ISA 540 Auditing accounting estimates, including fair value MCQs

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ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures requires the auditor to obtain an understanding
ISA 540, Auditing accounting estimates, including fair value accounting estimates, and related disclosures MCQs

ISA 540, Auditing accounting estimates, including fair value accounting estimates, and related disclosures

ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures requires the auditor to obtain an understanding of how management identifies those transactions, events or conditions that give rise to the need for an estimate. Here on MCQs.club we have prepared easy Multiple-Choice Questions (MCQs) on ISA 540 Accounting Estimates and Related Disclosures revised IFAC that fully cover the ISA 540 summary and definition, ISA 540 MCQs with answers, these MCQs are a basis of conclusions. These MCQ on SA 540 are helpful for Competitive exams, Professional Accountancy exams and Business management exams.

  1. ISA 540 Auditing accounting estimates, including fair value accounting estimates, and related disclosures is concerned with the audit of all accounting estimates, including those involving fair values. It requires auditors to obtain sufficient appropriate audit evidence as to whether:
    1. accounting estimates (whether recognised or disclosed in the financial statements) are reasonable
    2. whether the related disclosures are adequate.
    3. Both A&B
    4. None
  1. ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures requires the auditor to:
    1. Obtain an understanding of how management identifies those transactions, events or conditions that give rise to the need for an estimate.
    2. Enquire of management how the accounting estimate is made and the data on which it is based.
    3. Both A&B
    4. None
  1. ISA 540 defines an audit estimate as: ‘an approximation of a monetary amount in the absence of a precise means of measurement.’
    1. The above definition is correct
    2. The above definition is incorrect
  1. Accruals, prepayments and depreciation are all examples of areas where estimates are widely used.
    1. True
    2. False
  1. The examples of situations where fair value accounting estimates may be required include:
    1. complex financial instruments, which are not traded in an active and open market
    2. share-based payments
    3. property or equipment held for disposal
    4. All of the above
  1. For each estimate in the financial statements, the auditor must:
    1. Review the outcome of accounting estimates included in the prior period financial statements.
    2. Obtain written representations from management confirming that they believe the assumptions used in making estimates are reasonable.
    3. Determine whether events up to the date of the auditor’s report provide additional evidence with regard to the appropriateness of estimates.
    4. All of the above
  1. As part of their risk assessment procedures ISA 540 requires the auditor to obtain an understanding of:
    1. How management identify transactions or events that could result in an accounting estimate being recognised or disclosed in the financial statements.
    2. the method used for estimating (for example in deciding the estimated useful lives of non-current assets)
    3. The requirements of the applicable financial reporting framework (for example, international accounting standards) in respect of accounting estimates, including related disclosures.
    4. All of the above
  1. The examples of indicators of possible management bias in estimates are given in the ISA are:
    1. Changes in an accounting estimate, or the method for making it, where this is a subjective assessment.
    2. Selection or construction of significant assumptions that yield an estimate which favours management objectives.
    3. Both A&B
    4. None

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