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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

An audit team at Delmar Retail faces time pressure and is considering using a short-form conclusion on a complex estimate for warranty provisions, relying on management's model without testing key assumptions. Which statement best describes the impact of IESBA and ISA guidance on this situation?

The team should apply professional judgement and skepticism by evaluating the reasonableness of the key assumptions in management's warranty model and watching for management bias. Subjectivity or time pressure does not justify relying on management's model untested, and estimation uncertainty alone does not justify a disclaimer of opinion.

  1. AThe team may rely on management's model because estimates are inherently subjective and cannot be challenged
  2. BThe team should exercise professional judgement and skepticism, evaluating the reasonableness of key assumptions, and be alert to management biasCorrect
  3. CTime pressure justifies reducing procedures provided the partner approves verbally
  4. DThe team should disclaim an opinion on the provisions because estimates are uncertain

Explanation

ISA 540 (Revised) requires the auditor to evaluate whether management's methods, assumptions and data are appropriate and to remain alert to indicators of management bias, applying professional skepticism. Subjectivity (A) increases the need for challenge. Time pressure (C) is a recognised impediment to skepticism and does not justify fewer procedures, and a disclaimer (D) is not appropriate simply because estimation uncertainty exists.

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