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Accounting estimate audit risks get uneven scrutiny, study says

Tammy Whitehouse | May 4, 2017

Auditors are getting more vigilant about beating up on the risk of management bias in arriving at accounting estimates, but not so much when it comes to the risk of measurement imprecision.

New academic research emerging from the University of Arizona says the risk of error in accounting estimates due to imprecise measurement methods is just as important as the risk of management bias, but it isn’t getting the same level of attention from regulators. That means it’s not getting the same level of attention from auditors either.

The study suggests auditors generally respond to a high risk of management bias with a high level of audit effort. But when management bias is less threatening, auditors tend to lower their guard both on the risk of management bias and the risk of measurement imprecision, the study says. “A more balanced emphasis on both bias and imprecision not only results in a...

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