ACCA Advanced Audit and Assurance (AAA) Practice Exam

Which statement describes an auditor's point estimate?

1. An approximation used when there is complete precision

2. A range of amounts derived from audit evidence

3. A subjective measure of management's judgment

4. A historical average of financial data

The correct answer is: A range of amounts derived from audit evidence

An auditor's point estimate refers to a specific value that an auditor concludes from the audit evidence, representing the best estimation of a particular financial figure. This is distinct from a range of amounts because a point estimate signifies a single, precise figure rather than a range of acceptable values. It is often used in the context of estimating amounts for financial statement items, such as valuation of assets or liabilities. In auditing, point estimates are crucial because they provide clear benchmarks for evaluating the significance of the amounts presented in the financial statements. The auditor assesses the evidence gathered during the audit to arrive at this point estimate, which reflects their professional judgment based on the available information. The other options discuss concepts that do not accurately encapsulate the definition of a point estimate. For example, the idea of complete precision does not align with the nature of estimates, which inherently involve some level of uncertainty. Similarly, subjective measures of management judgments or historical averages do not specifically pertain to the auditor's independent estimation but rather to management's perspectives or past performance.