What it is
Each significant estimate needs its own record: how management made it, how risky it is, how the auditor responded and what the auditor concluded.
The memo is a block to complete for each estimate. It covers the method, data and assumptions, the risk assessment, three response approaches, retrospective review and the evaluation of reasonableness and bias.
When to use it
- Allowances, reserves, impairments, fair values and accruals.
- Estimates flagged as significant risks.
- When the review needs a consistent format across estimates.
What’s inside
- Identification and management process section
- Risk assessment of uncertainty, complexity and subjectivity
- Response approaches table
- Evaluation, bias and disclosure section
Standard cited
This template follows AU-C 540 / AS 2501. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use. See AU-C 540 explained.
Questions
How many memos do I need?
One per significant estimate. Smaller estimates can be covered in the account workpaper.
Does it cover specialists?
It has a row for specialists. For a full evaluation use the specialist evaluation memo.
Related templates
- Auditor-Engaged Specialist Evaluation Memo
- ASC 326 CECL Methodology Memo
- Audit Risk Assessment Worksheet (SAS 145)
- Lower of Cost or NRV Inventory Test (ASC 330)
Last updated 11/06/2026. All free templates.