Provide an example of an uncertainty that exists in the auditing profession and explain why you think it is an uncertainty.
Measurement Uncertainty in Financial Reporting: How Much to Recognize and How Best to Communicate It
In general, “uncertainty” means a state of limited knowledge where it is impossible or impracticable to describe exactly an existing state or a future outcome. Uncertainty exists in financial statements where measurements “to a large extent…are based on estimates, judgments, and models rather than exact depictions.” As the level of uncertainty increases, challenges may exist for:
For example, seemingly small changes from a management-selected input used to determine fair value could have a material impact on the reported result at any specific date. For example, when a fair value measure is determined primarily based on a discounted cash flow analysis, use of a discount rate that is 100 basis points different could mean the difference between a material goodwill impairment charge, or none at all.
This roundtable will bring together investors, preparers, and auditors to provide input about those measurements (and associated disclosures) where the outcome depends on future events that by definition are presently unknown. As the initial step in gathering input on this topic, the roundtable discussion will focus on:
Certain recent accounting standards have increased the extent of measurement uncertainty in financial statements and some standards have attempted to increase the transparency into the measurement uncertainty that underlies financial statement items. Nonetheless, there continue to be questions about the recognition and measurement of uncertainty; the disclosures necessary to understand the measurement uncertainty; and how uncertainty impacts auditability.
The FASB's Conceptual Framework for Financial Reporting states, “if the level of uncertainty … is sufficiently large, that estimate will not be particularly useful.” The nature and extent of measurement uncertainty depend on the economic phenomena that the underlying financial statement item is intended to represent. Some question what is the right balance and whether sufficient information is provided to understand the nature and extent of measurement uncertainty.
To explore this topic, it may be useful to illustrate some of the various accounting treatments that currently incorporate uncertainty. For example,
Provide an example of an uncertainty that exists in the auditing profession and explain why you...
Provide an example of an uncertainty that exists in the auditing profession and explain why you think it is an uncertainty. DON'T COPY & PASTE from any websites
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