Statement on auditing standards, 057

              Statement on
Auditing Standards
Issued by the Auditing Standards Board
AICPA American Institute of
Certified Public Accountants
April 1988
57
Auditing Accounting Estimates
1. This Statement provides guidance to auditors on obtaining and
evaluating sufficient competent evidential matter to support signifi­cant
accounting estimates in an audit of financial statements in accord-ance
with generally accepted auditing standards. For purposes of this
Statement, an accounting estimate is an approximation of a financial
statement element, item, or account. Accounting estimates are often
included in historical financial statements because—
a. The measurement of some amounts or the valuation of some
accounts is uncertain, pending the outcome of future events.
b. Relevant data concerning events that have already occurred can­not
be accumulated on a timely, cost- effective basis.
2. Accounting estimates in historical financial statements measure
the effects of past business transactions or events, or the present status
of an asset or liability. Examples of accounting estimates include net
realizable values of inventory and accounts receivable, property and
casualty insurance loss reserves, revenues from contracts accounted
for by the percentage- of- completion method, and pension and war­ranty
expenses. 1
3. Management is responsible for making the accounting estimates
included in the financial statements. Estimates are based on subjective
1Additional examples of accounting estimates included in historical financial state­ments
are presented in the Appendix.
Copyright © 1988 by the
American Institute of Certified Public Accountants Inc.
1211 Avenue of the Americas, New York, N. Y. 10036- 8775
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