An auditor must obtain knowledge of what system to understand accounting estimates?

The correct answer is grounded in the auditor's need to comprehend how financial information is processed, which is encapsulated in the entity's information system. The information system encompasses the procedures, policies, and controls related to data collection, processing, and reporting, including how accounting estimates are developed and managed.

Understanding the information system allows auditors to assess the accuracy and reliability of accounting estimates, which often involve significant judgment and assumptions. Such estimates may pertain to areas such as warranties, allowances for doubtful accounts, depreciation, or fair value measurements. By examining the information system, auditors can ascertain how data flows through the organization, how estimates are calculated, and how changes in market conditions might affect these estimates.

Knowledge of this system enables auditors to evaluate the appropriateness of the methodologies used to create these estimates, as well as the controls in place to ensure their integrity. Through a solid understanding of the information system, auditors enhance their ability to identify any potential risks or misstatements related to accounting estimates in the financial statements.