ACCA Advanced Audit and Assurance (AAA) Practice Exam

What does a management point estimate represent?

1. A calculated range derived from audit evidence

2. The amount selected by management for financial statements

3. An auditors' conclusion based on testing

4. A conservative estimate for liabilities

The correct answer is: The amount selected by management for financial statements

A management point estimate represents the specific amount that management chooses to reflect in the financial statements for a particular account or transaction, such as revenue, expenses, or liabilities. This estimate is based on the judgment and assumptions made by management regarding the future outcomes that affect these accounts, such as forecasts, market conditions, or risk assessments. In the context of financial reporting, point estimates are particularly important because they form the basis of the numbers presented in financial statements. These amounts should be reasonable, and management must ensure that they reflect the best available evidence and are compliant with applicable accounting standards. The decision to select a particular point estimate often involves considerable judgment, which is why auditors need to evaluate the basis and rationale behind management's choices during the audit process. The other options describe different concepts related to auditing and financial reporting, but they do not accurately capture the essence of what a management point estimate is. A calculated range derived from audit evidence pertains more to an auditor's consideration of possible values rather than a specific management figure. An auditor’s conclusion based on testing is focused on assurance rather than management's chosen figures. Lastly, a conservative estimate for liabilities refers to an approach that limits the potential understatements of liabilities, which is a broader concept beyond the specific nature of