Creating an ISA 540 Audit Checklist

Auditing accounting estimates is often challenging. This guide explores the requirements outlined in ISA 540: Auditing Accounting Estimates and Related Disclosures and answers auditor queries regarding practical challenges associated with this audit task.

Process Street is a free tool designed to help document business processes in checklist form, such as those related to auditing research credit claims. Our version has been tailored specifically for this task.

Pre-Audit Review

Making use of a security audit checklist will ensure your internal auditors follow all of the most essential steps for conducting an accurate and efficient assessment of your data, internal documents, and IT infrastructure security can be complex and time consuming; but with proper tools it can become simpler for auditors to complete this evaluation quickly.

Financial audits provide companies with a valuable way to assess their accounting records and compliance with regulatory requirements, usually conducted by external auditors, although internal auditors may also undertake financial audits for various reasons – for instance assessing revenue and expense reports as well as comparing actual expenses reported against balance sheet figures.

IFIAR publishes annual inspection findings compiled by its members from their individual audit inspections of audit firms. According to survey findings for 2014 and 2015, top inspection findings included fair value measurements as well as audits of systemically important financial institutions.

Pre-Audit Inspection

Pre-audit inspection is a process in which an auditing firm visits your company in order to assess the quality of your systems and systems’ quality. Auditors will identify areas for improvement before conducting an official evaluation and you can then take corrective actions prior to evaluation day.

Auditor will then evaluate traceability test reports and input-output reconciliations between contract processors and your organisation, and they will examine onsite all certified products handled by both.

Pre-inspection should ensure the research team is informed about the location and tentative schedule for an inspectors visit, charts and documents should be organized clearly to facilitate easy audit access, flagged critical research issues with key study staff in coordination, as well as creating a system to allow auditors to easily access them all before their arrival. Identify and address all issues prior to arriving for inspection by setting aside adequate time before their visit.

Post-Audit Inspection

Management must often rely on accounting estimates when operating entities of all types and sizes, which often contain some degree of estimation uncertainty and complexity. Recognizing and assessing risks related to material misstatements related to these estimates requires considerable judgment; accordingly, audit procedures may vary based on how these risks are evaluated.

Financial audits analyze an entity’s financial data against specified criteria to ensure that investors, regulators and directors can make sound decisions based on reliable information.

Checklists have long been used to reduce human error in cardiac operating rooms and diagnostic processes, so it comes as no surprise that they can also help mitigate errors during financial audits. By creating a checklist for an internal financial audit, it allows you to document compliance with International Standards on Auditing guidelines while making sure all required steps have been completed successfully. Process Street can assist in creating this checklist using International Standards on Auditing as a basis.

Final Report

At all types and sizes of entities, management often must make accounting estimates that contain estimation uncertainty and may be complex. Such estimates may be required or allowed under different financial reporting frameworks that differ in their requirements and level of guidance for measuring assets and liabilities at fair value; as a result, audit procedures required will depend upon both estimation uncertainty and assessments of risks of material misstatement.

As such, the IAASB recently revised ISA 540: Auditing Accounting Estimates and Related Disclosures, to provide more precise guidance for auditing this type of item. ISA 540 includes flowcharts that demonstrate its relationship to other ISAs as well as providing auditors with a checklist to facilitate their work; this can be used for internal audits as well as research credit calculations or studies or even when preparing for external audits.