1. Learning Objectives LO1 Understand the traditional approach to dealing with accounting uncertainty and going concern. LO2 Describe the main concepts of CAS 540 and its relevance for financial reporting. LO3 Demonstrate an ability to apply CAS 540 in a qualitative way. LO4 Explain the problems with existing standards. 1

2. Issues related to auditor’s reasonable ranges 1. The key issue is factors to consider in determining the width of the range. 2. The auditor must accept the reality of the uncertainty that may be associated with the range. 3. Specialists such as engineers, actuaries, and economists may need to be consulted. 4. The range estimate must be at the date the auditor has gathered all the evidence. LO4 2

3. Issues related to auditor’s reasonable ranges 5. A key issue is the length of the range compared to materiality. 6. Estimates with ranges that are too wide should be treated as contingencies (he is making a proposal about accounting theory at this point). LO4 3

4. Issues related to auditor’s reasonable ranges 7. Ranges and their uncertainties should be disclosed (another accounting recommendation—indication that auditing and accounting may not be separable in judgment; we can view this as his proposal to make fairness of presentation reporting more operational). LO4 4

5. Issues related to auditor’s reasonable ranges 8. There are huge pressures on the auditor from management regarding recording of estimates This is because such estimates are essentially subjective in nature, and the major source of disagreement is likely the assumptions made about future-event outcomes. These assumptions and LO4 5