[1] Explain and propose any adjusting entry based on your analysis. Explain what Cockburns nightmare means for financial reporting and the auditors report. See CAS 540.A113-A128 for some guidance. You can also use any theory you learned in other courses and in the readings for this course. After you calculate these AccRs, briefly discuss how you would use these in your audit decision making. For example, is this a significant risk arising from estimation uncertainties of CAS 540? What are the financial reporting implications? Would you treat this estimate as something to disclose as a key audit matter in your audit report? Provide an example of your disclosure in the audit report.

[2] Does Cockburns nightmare mean that the estimate is not auditable as per lecture notes of class 6-8 pp. 1-7? Is it appropriate to use high risk accounting estimates in GAAP reporting? Can you identify conditions under which they would not be appropriate? Do the note disclosures for high risk estimates need to be auditable? Why or why not? Can you give an example of an unauditable note disclosure involving ranges of estimates?

[3] Augment the range of uncertainty. Chances are good that youve just underestimated the range of uncertainty, no matter how realistic you thought you were when you assessed it. Extensive empirical evidence shows that people consistently underestimate uncertaintytheir powers of imagination are usually worse than their powers of mathematics. We have advice for those whod like to stretch their imaginations, but if you are not feeling creative, we have a rule of thumb: if you have a small amount of historical data thats relevant for modeling the future, double the distance between the largest and smallest observations. Why? Well, to estimate a range accurately, you need to observe values at the two extremes. However, by definition, extreme values occur only rarely, so you are unlikely to observe them in small samples. Doubling what youve observed in a limited number of past occurrences is a crude way of estimating, say, the 95% range.

On the other hand, if you have a wealth of past data (on oil prices, for example), you may not need to double your range. However, wed still recommend multiplying it by at least 1.5.

Why Forecasts Fail, and What to Do Instead. Rotman Magazine, Fall 2010: pages 70-71, by S. Makridakis, R. Hogarth, and A. Gaba. This is the same guidance as in your required reading for class 7.

In your conclusion, comment on how the above excerpt may affect your estimate. Will this suggestion address overconfidence in assessing a range? Briefly discuss. Also comment on what is the effect of using 2016 data as instructed in section 1 above, compared to 2008 assumptions of Roman Holiday.

Also comment on what responsibilities you have for adjusting for any 2008-2016 differences between your assumptions and that of RHP. Specifically, do auditors need to be concerned only about any differences between now (2017) and the end of the 14 year time horizon (end of 2021); or should auditors also be concerned with any differences in 2008-2016? Explain, providing good reasons from an audit perspective