Auditing estimates: what will the future bring?

Paul de Beus and Maarten Koning
Additional contact information
Paul de Beus: EY, The Netherlands
Maarten Koning: EY, The Netherlands

Journal of Financial Perspectives, 2015, vol. 3, issue 1, 256-293

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.”

Keywords: Solvency II; audit (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0068

Access Statistics for this article

Journal of Financial Perspectives is currently edited by Ms Alina Stefan

More articles in Journal of Financial Perspectives from EY Global FS Institute 1 More London Place, London SE1 2AF, UK.
Bibliographic data for series maintained by Ms Alina Stefan ( this e-mail address is bad, please contact ).