hi there I have two audit question need to be addressed.

1. 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?

2.

The auditors responsibility is to estimate best figures using their own judgment, market research or using the valuation model. Auditor should need to be concerned regarding the differences between the time periods, as long time will result in more concern for the auditor because it involves lots of estimations.

A serious first step for the auditor in planning the work needed on estimates is to understand the clients business and identify where the greatest scope for unintended or conscious bias in creation of estimates exists. This assessment will include a formal and documented assessment of

how the client identifies the matter subject to estimates and how satisfactory these procedures are and how the client identifies the uncertainty. Estimation uncertainty is the propensity of an accounting estimate and related disclosures to an intrinsic lack of precision in its measurement. The larger the estimation uncertainty, the more the client will need to discover the effect of different models and assumptions to make an appropriate estimate. Such as if long term receivables are judged to be subject to high estimation uncertainty, the client will need to test how sensitive the estimates are to changes in discount rates or assumed default rates. If estimation uncertainty is lower, less work will be required by the client in determining the estimate and also less corroborative evidence needs to be obtained by the auditor.

How the client has identified new items that are subject to estimates and any existing items subject to estimation but where there may now be a more reliable method of establishing an estimate.

The source data used by the client upon which to base an estimate, together with how relevant and reliable that source data appears to be.

When you think you have done all you can to audit the clients franchise rights, consider the following quote by the best experts in practical business forecasting:

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.