IDEAS home Printed from https://ideas.repec.org/a/ris/jofipe/0068.html
   My bibliography  Save this article

Auditing estimates: what will the future bring?

Author

Listed:
  • de Beus, Paul

    (EY, The Netherlands)

  • Koning, Maarten

    (EY, The Netherlands)

Abstract

Under Solvency II, national competent authorities are requesting audit procedures to be performed on all supervisory reporting. Reports will contain more information based on projections of future cash flows. The level of assurance from the Solvency II external audit is expected to be similar to the opinion provided by auditors on financial statements, i.e., reasonable assurance. Current guidelines represent only minimum requirements. So, when is good, “good enough” for the external auditor? In this article, we suggest to analyze the (audit) findings on model outputs against a reasonable range. And in specific situations, this range can exceed the traditional “tolerable error” (TE). We translate the qualitative assessment of a reasonable range and make it quantifiable and objective. We will do so by defining a tolerable range based on sensitivities of inherent variability of underlying key risk drivers. This is needed because audit materiality and TE measures are mainly focusing on “errors” (or misstatements), and are often based on less substantiated and sophisticated approaches. However, when using model outputs in which key model design and parameter choices have to be made, and cash flows are projected long into the future, it is quite often not a question of simply being “right or wrong.”

Suggested Citation

  • de Beus, Paul & Koning, Maarten, 2015. "Auditing estimates: what will the future bring?," Journal of Financial Perspectives, EY Global FS Institute, vol. 3(1), pages 256-293.
  • Handle: RePEc:ris:jofipe:0068
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    Solvency II; audit;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:jofipe:0068. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ms Alina Stefan (email available below). General contact details of provider: http://www.ey.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.