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Determining high estimation uncertainty and significant risk
When performing an audit, you need to use your judgement to determine whether an accounting estimate, identified as having high estimation uncertainty, gives rise to a significant risk. The examples and guidance below are designed to help you when considering whether estimates with high estimation uncertainty may give rise to significant risks.
In determining whether an accounting estimate has high estimation uncertainty, the auditor needs to consider the risk factors that influence the likelihood and magnitude of a potential misstatement.
Under ISA 540, Auditing accounting estimates including fair value accounting estimates, and related disclosures (ISA 540), the following are examples of indicators of high estimation uncertainty: