ISA 540 (revised): Effect on Audit Quality

Abstract

The purpose of this master thesis is to investigate whether the revision of ISA 540 has had a positive effect on the audit quality of accounting estimates, to that end it is also investigated whether ISA 315 (Revised 2019) will have an impact on ISA 540 (Revised). The initial purpose of this thesis was, in addition to learn from the process itself, to give the reader an insight into ISA 540 (Revised) and whether the revision has had an impact on the auditor's performance of the audit of accounting estimates. The study of the thesis statement was based on research upon the subject. First, auditing theory, laws and regulations of the auditing industry were examined, such as international standards on auditing and articles. In addition, primary data was used in the form of a self-conducted questionnaire survey with accountants as respondents. Based on the applied scientific theory, the conclusion of this thesis cannot be considered final, as the results and thus the truth are in constant change. The study concludes that the level of detail in ISA 540 (Revised) has been increased, especially in relation to documentation requirements, however the content regarding scaling of the standard is at a very general level, and the instructions in Danish are very limited. The assessment of whether the audit quality of accounting estimates has improved following ISA 540 (Revised) is highly subjective; auditors in the large auditing firms primarily believe that the standard has had a positive effect on audit quality of accounting estimates, whereas the small and medium-sized auditing firms believe that the effect has been more limited. In addition, the study concludes that ISA 315 (Revised 2019) is expected to have a positive effect to some extent on ISA 540 (Revised) in relation to the audit quality of accounting estimates. However, the assessment is an expectation, as ISA 315 (Revised 2019) first is going to be used in connection with audits from the financial year 2022.