Required For each area: 1. Identify the factors inherent in the account that might significantly…

Required
For each area:
1. Identify the factors inherent in the account that might significantly affect the dollar estimate of the account balance.
2. For each factor identified, briefly discuss the importance of the item to the overall account estimate. For example, how important is the interest rate assumption to the overall estimate of the pension liability?
3. For each factor identified, briefly describe audit evidence that should be gathered to determine how the factor should be used in making the accounting estimate. For example, how should the auditor determine the proper interest rate assumption in estimating the account balance?
4. Assuming there are differences between the auditor’s estimate and management’s estimate, indicate how the auditor can determine whether management is attempting to “manage” or “smooth earnings” or whether there is a genuine disagreement on the correct factor to be used in making the estimate.

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