The Canadian Public Accountability Board published a paper on auditing accounting estimates, noting that volatility in interest rates, persistent inflation, constrained credit and geopolitical instability are increasing estimation uncertainty and elevating the risk of material misstatement in areas such as fair value, asset impairment and going concern. Inspection results indicate audit quality in this area has improved since the revised Canadian Auditing Standard 540 became effective for periods beginning on or after 15 December 2019, but CPAB continues to find deficiencies in the sufficiency and appropriateness of audit work on critical estimates. Recurring challenges include weak challenge of management’s estimate approach, inappropriate use of auditor point estimates or ranges without adequately understanding how management addressed estimation uncertainty or considering independence, failure to assess the impact of identified model deficiencies on internal controls, insufficient evaluation of contradictory evidence and inadequate stand-back assessments. The publication also reinforces how firm systems of quality management can support more consistent outcomes through resourcing controls at acceptance and continuance, ongoing monitoring of staffing and budgets, consultation triggers for higher-risk areas such as impairment, Level 3 valuations and potential going concern issues, centralized media monitoring and firm-level intellectual resources, alongside leadership “tone at the top” that supports professional skepticism and escalation. Illustrative scenarios based on inspection findings cover impairment testing of goodwill and intangible assets and allowance for credit losses, highlighting gaps in challenging assumptions and models, testing controls and data, and evaluating bias.
Canadian Public Accountability Board 2026-03-01
Canadian Public Accountability Board flags recurring audit deficiencies in accounting estimates under CAS 540 amid heightened economic uncertainty
The Canadian Public Accountability Board released a paper highlighting increased estimation uncertainty and risk of material misstatement due to volatile interest rates, inflation, credit constraints, and geopolitical instability. While audit quality has improved since the revised Canadian Auditing Standard 540, deficiencies remain in audit work on critical estimates. The paper emphasizes the importance of firm quality management systems for consistent audit outcomes and addresses recurring challenges in management's estimate approach and evaluation of contradictory evidence.