Recent decades have witnessed an increase in the overall uncertainty inherent in financial statements. It is now common for the financial statements of a public company to include estimates with measurement uncertainties that exceed materiality. As a result, auditing students are now required to have a more profound understanding of (i) the impact of accounting estimates on risk assessment and (ii) the development of audit procedures to deal with accounting estimates. This case allows students to explore CAS 540 – Accounting Estimates by assuming the role of Atlantic Canada Aquaculture's (ACA's) auditor. ACA operates in Eastern Canada and is prohibited by Canadian regulations to catch and release the fish in their farm to determine their biological asset value. As a result, ACA developed a statistical model to determine the number and weight of the fish in their farm. The model is based on various estimates, such as water temperature, survival rates, and food quality. Students are required to explore the impacts of the model's estimates on the inherent risks in the financial statements and assess the reasonability of the model from an external auditor's perspective. The case also allows students to explore CAS 620 – Using the work of an Auditor's Expert and CAS 701 – Communicating Key Audit Matters in the Independent Auditor's Report in the context of the audit of biological assets.

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Accounting Perspectives
Sprott School of Business

Lento, C. (Camillo), Bujaki, M, & Yeung, W.H. (Wing Him). (2018). Auditing Estimates in Financial Statements: A Case Study of a Fish Farm's Biological Asset. Accounting Perspectives, 17(3), 453–462. doi:10.1111/1911-3838.12179