Model: Ram934/mpnet-base-all-nli-triplet
Author: Ram934
Pipeline: sentence-similarity
Library: sentence-transformers
Tags: sentence-transformers, safetensors, bert, sentence-similarity, feature-extraction, generated_from_trainer, dataset_size:27, loss:MatryoshkaLoss, loss:MultipleNegativesRankingLoss, en, arxiv:1908.10084, arxiv:2205.13147, arxiv:1705.00652, base_model:BAAI/bge-base-en-v1.5, base_model:finetune:BAAI/bge-base-en-v1.5, license:apache-2.0, text-embeddings-inference, endpoints_compatible, region:us
Base models (finetune): id: BAAI/bge-base-en-v1.5
Card metadata: base_model: BAAI/bge-base-en-v1.5
language: en
library_name: sentence-transformers
license: apache-2.0
pipeline_tag: sentence-similarity
tags: sentence-transformers, sentence-similarity, feature-extraction, generated_from_trainer, dataset_size:27, loss:MatryoshkaLoss, loss:MultipleNegativesRankingLoss
widget: source_sentence:  # TAX: Taxes
  ##  8 Summary of audit differences and summary of control deficiencies
    Our   Guide to auditing income taxes (SCORE No. 05990-171US) is designed to be used by audit and tax professionals as the   primary source of audit guidance for planning and performing audit procedures for income tax accounts in audits conducted in accordance with AICPA or PCAOB standards.  ###  8.1 Summary of audit differences
  When audit or tax professionals identify any factual or judgmental misstatements, we bring the misstatement to the attention of the partner in charge of the audit to determine the appropriate course of action. We discuss misstatements with management, regardless of size, and whether resulting in an overstatement or understatement of a tax account. Audit professionals include all misstatements relating to tax accounts above our SAD nominal amount on the summary of audit differences where we evaluate and conclude on them, individually and in the aggregate with other misstatements. When we identify misstatements below the SAD nominal amount, or encounter issues that may adversely affect the entity or are indicative of control deficiencies we bring the issue to the attention of the partner in charge of the audit. We do not expand procedures to search for such situations or other matters that involve lesser amounts without prior discussion with the partner in charge of the audit. Refer to  MISSTATE.  ###  8.2 Summary of control deficiencies
  When audit or tax professionals identify one or more control deficiencies in tax accounts, we determine, on the basis of the audit procedures performed, whether individually or in combination, they constitute a significant deficiency (or material weakness if required to be communicated in the jurisdiction) in internal control. We consider the effect of control deficiencies identified on our combined risk assessment and the nature, timing and extent of audit procedures performed. Refer to  SOCD., # HIGHER RISK: Responding to a ‘higher’ risk audit designation from the acceptance and continuance process
,  # SAMPLE: 4 Sampling for tests of details
  ##  4.5 Determine sample size
   ###  4.5.3 Statistical techniques for determining sample size
  As described in  SAMPLE 2.3, we choose from the following statistical techniques in determining our representative sample size:   Monetary unit sampling (MUS) ( SAMPLE 4.5.3a)  Random sampling ( SAMPLE 4.5.3b)  Discovery sampling ( SAMPLE 4.5.3c)  Variables estimation sampling ( SAMPLE 4.5.3d)  ####  4.5.3a Monetary unit sampling
  MUS assists in selecting sampling units proportional to their size in the population and to express a conclusion as a monetary value rather than as a rate of occurrence. It is an appropriate sampling technique for tests of details when we wish to draw a conclusion about the total monetary misstatement within an account balance. MUS is often used for testing asset accounts when our primary audit concern is with overstatement. However, MUS can be used for liability accounts when our primary concern is with understatement under certain circumstances. With MUS, the approach to testing the understatement of a population is to test a complement population for overstatement.   MUS is not appropriate in situations when we expect a high number of errors. To help us determine our sample sizes using MUS, we use our audit sampling tool which applies the EY audit risk tables (ARTs), refer to  SAMPLE Appendix 1. For additional guidance on MUS refer to  SAMPLE 2.3.1.  ####  4.5.3b Random sampling technique
  Random sampling is a sampling technique whereby each item in the population is given an equal or known chance of selection regardless of size. Like MUS, a random sampling technique is not appropriate in situations when we expect a high number of errors and is often used for testing asset accounts when our primary audit concern is with overstatement. However, a random sampling technique can be used for liability accounts when our primary concern is with understatement in certain circumstances. As with MUS, the approach to testing the understatement of a population with a random sampling technique is to test a related population for overstatement. To help in calculating our sample sizes using random sampling we use the ARTs, refer to  SAMPLE Appendix 1 Audit risk tables. We use our audit sampling tool to apply the ARTs when using random sampling. For additional guidance on random sampling technique refer to  SAMPLE 2.3.2., # GROUP FRAUD: Fraud risks and responses
  ##  1 Obtain information to identify risks of fraud
   ###  1.3 Inquiries
  The Primary Team obtains information to identify risks of material misstatement of the group financial statements through inquiries at group level). <REQUIREMENT> In addition to the required procedures in  FRAUD-RISK 3.2, the Primary Team makes inquiries of group management about:  EY Policy   The nature and extent of monitoring of components or business segments  Whether there are particular components or business segments for which a risk of material misstatement of the group financial statements due to fraud may be more likely to exist</REQUIREMENT> The Primary Team considers whether to make additional inquiries at the component level, particularly when the risk of fraud is heightened. If so, the Primary Team communicates to the component team the relevant inquiries to be made by the component team.  Delays in the finalization of local statutory financial statements may be an indication that issues exist within the components’ accounting processes, including the FSCP, which may give rise to heightened risk of fraud.  When EY performs the statutory audits of the components within the group, the Primary Team usually has an understanding of the status of statutory reporting across the group. When the Primary Team determines that it does not have a clear understanding of the status of statutory reporting across the group (e.g., when non-EY auditors are also providing statutory audit opinions), it may be helpful for the Primary Team to inquire of group management regarding the monitoring processes for statutory audit opinions and discuss whether any of the audit opinions contain a modification or a material uncertainty relating to going concern, which may give rise to a risk of material misstatement due to fraud or error.  In addition, the Primary Team may also inquire as to whether any delays are expected on any current period local statutory audits. Issuing an adverse audit opinion or delays in finalizing the statutory audit may be an indicator of a risk of material misstatement due to fraud and therefore we investigate as appropriate.
When the data is obtained centrally for the group, the Primary Team uses the results of risk assessment analytical procedures using automated techniques to make inquiries of group management based on the information observed performing these procedures. Refer to  FRAUD-RISK 3.2 for examples.
In a full scope engagement, refer to  FRAUD-RISK 3.2. For specific scope engagements, the Primary Team uses professional judgment to determine if inquiries regarding fraud are to be made by the component team. The Primary Team considers if those inquiries are appropriate in relation to the nature and extent of work that has been assigned to the component team.,  # Going concern (last updated 01 November 2022)
  ## What procedures should a component team perform to determine whether it can rely on a letter of support for its statutory audit to mitigate events or conditions that may raise substantial doubt about the component entity’s ability to continue as a going concern and what are the implications for the Primary Team? [01 November 2022]
  When a component team issues an audit opinion on the component’s financial statements and has identified events or conditions that may cast significant doubt about the component entity’s ability to continue as a going concern, the component team obtains additional information from management about the parent company’s intention and ability to support the component, including the measures that group management will implement. EY GAM  GROUP GOING CONCERN. When component management has obtained a letter of support from the parent company (or another entity within the group) confirming support of the component, the component team works closely with the Primary Team, or when this is not possible, with group management, to confirm the group’s ability and intent to support the component. A crisis event may impact multiple components within the group and the group as a whole. Therefore, when the Primary Team works with a component team to assess whether the group has the ability to support the component, it considers collectively all components within the group. The Primary Team considers the number and potential aggregate exposure of the components for which letters of support have been issued. If each component were to call on the group to honor the letter of support, does the group have the capacity to meet them all?  The extent of the procedures needed to obtain sufficient evidence over the existence, legality and enforceability of the arrangement to provide or maintain financial support and to assess whether the group has the financial ability to provide the support will depend on the particular circumstances. EY GAM  GOING CONCERN Appendix 2 for guidance on the types of procedures we may perform to obtain sufficient evidence.  When the component team (with the support of the Primary Team) is not able to obtain sufficient evidence regarding the support of group management, the component team (with the support of the Primary Team) determines whether substantial doubt exists about the component’s ability to continue as a going concern. Any form of limitation or conditionality on the support has a high likelihood of resulting in substantial doubt about the component’s ability to continue as a going concern – in the same way as such limitations would if they came from a lending institution. Such limitations or conditions include the common commitment to let the recipient know if the parent was unable to continue the support and any references to “current intentions” of the parent.  When a going concern uncertainty paragraph is included in the auditor’s report at the group level or a qualified or adverse opinion is expressed due to going concern issue, respective modification should be included in auditor’s reports on all components’ financial statements. In the US, discussion with a Professional Practice partner assigned to the Region may be appropriate for the wording of the auditor’s report on the components’ financial statements.  It’s important to note that we are required to consult with a Professional Practice partner assigned to the Region when we consider not to carry through to the subsidiary report a consolidated entity’s going concern modifier. When a letter of support is in place, we also determine the adequacy of related disclosures. Note that component teams also give specific consideration to local requirements when assessing whether reliance can be placed on the letter of support.,  # Going concern (last updated 01 November 2022)
  ## What is the Primary Team’s responsibility when it becomes aware of confidential information that will significantly (or adversely) affect a component but group management refuses to inform component management of these significant decisions made at the group level? [01 November 2022]
  The Primary Team may be made aware by group management of decisions that may significantly (or adversely) affect a component in the group (e.g., by intending to restructure the group’s activities and/or liquidate a component) for which we are also issuing a statutory audit opinion on the component’s financial statements. In the circumstances when group management refuses to communicate this key decision to component management, the Primary Team communicates the matter with those charged with governance of the group in accordance with EY GAM  GROUP COMMS 2. If the matter remains unresolved, the Primary Team is required to consult with a Professional Practice partner assigned to the Region to determine whether to advise the component team not to issue the auditors’ report on the financial statements of the component until the matter is resolved. When the component team is only engaged to perform audit procedures in relation to the group audit (i.e., the component team only issues an interoffice conclusion to the Primary Team), the Primary Team works with group management to understand the effect this key decision may have on the group audit opinion and updates its documentation accordingly. In all cases, the Primary Team also considers updating the group representation letter to reflect matters not communicated to component management.,  # SAMPLE: 4 Sampling for tests of details
  ##  4.8 Evaluate and conclude on the sample results
   ###  4.8.3 Calculate the projected representative misstatement
    ####  4.8.3a Ratio projection method
  The ratio projection method projects the ratio of monetary misstatement in the sample to the book value of the entire sampled population. In other words, it applies the relative amount of monetary misstatement (understatement or overstatement) observed in the sample to the population. The ratio projection method does not require an estimate of the number of sampling units in a population, unlike the difference method (refer to  SAMPLE 4.8.3b).    ####  4.8.3b Difference method
  The difference method projects the average monetary difference between the audited and the recorded amounts of each item in the sample to all items in the sampled population.  , # CLOSE MONITOR: Responding to a “Close monitoring” audit designation from the acceptance and continuance process
,  # GOING CONCERN REPORTING – Reporting on going concern uncertainty [effective for AICPA audits of periods ending on or after 15 December 2021]
  ##  6 Relationship of going concern reporting to key audit matters
  Our responsibility to communicate key audit matters in the auditor’s report is dealt with in  KAM.  When we communicate key audit matters,  KAM 2.2.1 explains that although a matter giving rise to a modified opinion or a matter resulting from substantial doubt about an entity’s ability to continue as a going concern are reported separately in the auditor’s report, these matters are by their nature key audit matters (and are referenced within the  Key Audit Matters section of the auditor’s report (refer to  KAM 2.4.1)). This would apply when we determine disclosures related to going concern are inadequate and we conclude that it is necessary to modify our auditor’s opinion. In accordance with  KAM 2.4.1, the substantial doubt over an entity’s ability to continue as a going concern is not reported in the Key audit matter section (and is reported in the  Going Concern section of the auditor’s report in accordance with  GOING CONCERN REPORTING 4.1). However, the substantial doubt about the entity’s ability to continue as a going concern is referred to in the introductory language of the  Key audit matters section of our auditor’s report.  Contrary to the above circumstances, it is possible to identify a key audit matter related to going concern, which would be reported in the  Key audit matters section, when:   We identify events and conditions and  Conclude that no substantial doubt about an entity’s ability to continue as a going concern exists and   Conclude that the disclosures related to those events or conditions are adequate As key audit matters are defined as matters of most significance in our audit, a matter related to going concern (when substantial doubt about an entity’s ability to continue as a going concern does not exist) may constitute a key audit matter, for example, when the determination that substantial doubt about an entity’s ability to continue as a going concern does not exist was a “close call” or the assessment of the entity’s ability to continue as a going concern required significant audit effort.           We are required to consult with a Professional Practice partner assigned to the Region when we identify an issue related to going concern as a KAM to be communicated, but have concluded substantial doubt over the entity’s ability to continue as a going concern does not exist.  EY Policy ( KAM 1.3),  # US A&A News — 15 July 2021
  ## Audit and other internal-only matters
  ### Audit partners are encouraged to complete PCAOB survey on CAMs requirements
  The EY organization has agreed to support research by the PCAOB on the overall impact of the requirement for auditors to report on critical audit matters (CAMs), and partners on audits for which we have reported on CAMs are encouraged to complete this  PCAOB survey. The survey should take no more than 20 minutes to complete and will remain open through 30 July 2021. The PCAOB had a similar survey in 2020 as part of its interim analysis. Responses will not be linked to any personal information and will not be reported at the individual or firm level in any publication from this study.  ### New FAQs for supporting UK component teams’ going concern assessments
  New  frequently asked questions (FAQs) are available to help US Primary Teams support UK component teams in determining whether there is substantial doubt about a UK entity’s ability to continue as a going concern. The FAQs focus on the following:  What to expect under the UK auditing standard on going concern assessments  Procedures that the UK component team may request that the US Primary Team performs The level of audit documentation that may be provided by the US Primary Team An example of a UK support letter  These FAQs compliment revisions to  GOING CONCERN-US that were announced in the Special Edition A&A News of 13 July 2021.  ### Updated EY centralized pricing service analysis memorandum
  The  EY centralized pricing service analysis memorandum that summarizes the procedures Ernst & Young LLP (the US Firm) has performed through June 2021 to support our conclusions about whether we can use pricing information provided by certain pricing services as audit evidence has been updated. The procedures address aspects of certain requirements in   AS_6.6 Auditing investments, including alternative investments and reflect monthly inquiries of the pricing vendors. The US Firm performed the centralized procedures for the following vendors:  ICE Data Pricing & Reference Data, LLC (ICE) Thomson Reuters Pricing Service (Refinitiv) Markit Group, Ltd. (IHS Markit) Bloomberg Valuation Service System (Bloomberg or BVAL) PricingDirect Inc. (JP Morgan Pricing Direct) Merrill Lynch Valuations, LLC (PriceServe) The memorandum summarizes procedures performed by the US Firm to address the following requirements in  AS_6.6:   We evaluate the reliability of pricing information that we use as audit evidence.  [PCAOB audits only] For lower estimation uncertainty classes of fixed income investments, we evaluate the valuation process used by the pricing service from which we obtain pricing information that we use as audit evidence.  [PCAOB audits only] For exchange-traded investments, we evaluate whether the pricing source obtains the prices from original sources. We use this memorandum to support our conclusions by either retaining it in EY Canvas or referring to it in our workpapers. 
sentences: Sampling risk to be considered as some in which situations, is the primary audit concern overstatement?, What are IPE's. Does information from a third party expert comes under IPE risk, source_sentence: # 8-11 Update and evaluate controls
  ##  10 Evaluate deficiencies in internal control
   <REQUIREMENT> We determine whether, on the basis of the audit work performed, we have identified one or more  deficiencies in internal control.   ISA 265.7, AICPA AU-C 265.08</REQUIREMENT> If we conclude that a control is not operating effectively and a control deficiency exists, we evaluate it to determine if it constitutes a significant deficiency (or material weakness if required to be communicated in the jurisdiction) that we need to communicate to management and those charged with governance. Refer to  SOCD 1.  We may identify deficiencies in:   Design, when we confirm our understanding of controls through performing walkthrough procedures   Operation, as we execute our tests of controls  A deficiency in design exists when either:   A control necessary to address a WCGW or IT risk is missing  An existing control is inappropriately designed so that, even if it operates as designed, its objective will not be met (e.g., it will not prevent a misstatement occurring on a timely basis) A deficiency in operation exists when either:   An appropriately designed control does not operate as intended   The person performing the control does not possess the necessary authority, capabilities, competence or objectivity to do it effectively Generally, control exceptions indicate a deficiency in internal control, except in the following limited situations:   Upon further evaluation, we determine it was not a deviation from the intended functioning of the control (i.e., we misinterpreted the exception)  We obtain sufficient appropriate audit evidence by performing additional procedures, beyond inquiry, to conclude that the rate of exception in the functioning of the control is acceptable based on our understanding of its design (e.g., we extend the sample size for a random control exception, refer to  CONTROLS 8.2a) <REQUIREMENT>
For integrated audits, in the limited circumstances when we conclude that a control exception is not considered a deficiency, we generally perform additional testing to conclude that the control is operating effectively, or the rate of exception is acceptable.   PCAOB AS 2201.48
</REQUIREMENT>
For integrated audits, we consider accumulating control exceptions determined not to be control deficiencies to facilitate audit executive review and determine that we adequately evaluated and documented each control exception. Such accumulation may include the control description, related SCOT, business unit/location, description of the exception and explanation why it is not a control deficiency. We include exceptions that we identified from our independent tests of controls, or from testing performed by management, internal audit or others.
The existence of effective compensating controls does not remove a control deficiency.,  # SOCD : Evaluate control deficiencies
  ## Purpose
  We evaluate control deficiencies identified through our audit procedures to determine if they constitute a significant deficiency. We evaluate both identified deficiencies in the design of controls and in the operation of controls. Design deficiencies include those that are identified related to the appropriateness of the entity’s policies in each of the components of the system of internal control (refer to  ELC [ Pre Dec 2022: ELC] and  FSCP 6). In some jurisdictions, for example when reporting as an integrated audit under PCAOB standards, we also determine whether the control deficiency is a material weakness. Throughout EY GAM, we discuss identifying significant deficiencies and use the phrase “or material weakness if required to be communicated in the jurisdiction” to address these situations. We refer to local requirements when determining whether a control deficiency is a material weakness. We communicate significant deficiencies to management and those charged with governance, and when applicable in the jurisdiction, we communicate separately material weaknesses. For guidance on determining whether we have identified a control exception and whether it is a deficiency refer to  CONTROLS 8 and  CONTROLS 10. This topic provides requirements and guidance to determine whether a control deficiency constitutes a significant deficiency (or material weakness if required to be communicated in the jurisdiction)., # SOCD : Evaluate control deficiencies
  ##  1 Significant deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)
     #### 1.1 Indicators of a material weakness
  In addition to the quantitative and qualitative factors discussed in  SOCD 1, we consider indicators of material weaknesses in internal control when evaluating whether a control deficiency is a material weakness.  Indicators of material weaknesses in internal control include:   Identification of fraud, whether or not material, on the part of senior management  Restatement of previously issued financial statements to reflect the correction of a material misstatement due to fraud or error  Identification by us of a material misstatement of the financial statements under audit in circumstances that indicate that the misstatement would not have been detected by the entity’s internal control, and  Ineffective oversight of the entity’s financial reporting and internal control by those charged with governance  PCAOB AS 1305.05 <REQUIREMENT> When we evaluate the significance of a deficiency, or combination of deficiencies, in internal control over financial reporting, we determine the level of detail and degree of assurance that would satisfy prudent officials in the conduct of their own affairs that they have reasonable assurance that transactions are recorded as necessary to permit the preparation of  financial statements in accordance with the applicable financial reporting framework.   PCAOB AS 2201.70, AICPA AU-C 265.10 If we determine that the deficiency, or combination of deficiencies, would prevent prudent officials in the conduct of their own affairs from concluding that they have reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the applicable financial reporting framework, then we deem the deficiency, or combination of deficiencies, to be an indicator of a material weakness.   PCAOB AS 2201.70, AICPA AU-C 265.10</REQUIREMENT> <CONSULTATION>
Given the high degree of judgment required, we are required to consult with the Regional PPD if any of the above circumstances are noted because they are indicators that a material weakness in internal control over financial reporting exists. Such consultation includes the effects on our report and the implications on client continuance.   EY Policy  These matters require consultation with the  Regional PPD and should not be delegated to other partners within the PPD group assigned to the Region.
</CONSULTATION>
The following diagram can be used to assist in evaluating deficiencies as it graphically depicts the evaluation process required under PCAOB AS 2201:
, # SOCD : Evaluate control deficiencies
  ##  1 Significant deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)
For integrated audits, we include consideration of the entity’s interim financial statements in our evaluation of a material weakness.
A control deficiency alone may not represent a significant deficiency (or material weakness if required to be communicated in the jurisdiction). However, a combination of deficiencies affecting the same significant account or disclosure, or relevant assertion, may increase the risk of material misstatement and give rise to a significant deficiency (or material weakness). <REQUIREMENT>
We determine whether individual control deficiencies that affect the same significant account or disclosure, relevant assertion or component of internal control individually or in combination result in a material weakness.   PCAOB AS 2201.65
</REQUIREMENT>
We, management, the internal audit function or other third parties may identify control deficiencies. Regardless of who identifies the control deficiency, we consider all control deficiencies accumulated in our evaluation. Our evaluation requires significant professional judgment and involves audit executives. We do not accumulate deficiencies identified by others that do not affect the identified significant accounts and disclosures and relevant assertions.
The severity of a deficiency depends on:   Whether there is a reasonable possibility that the entity’s controls will fail to prevent, or detect and correct, a misstatement in an account or disclosure  The magnitude of the potential misstatement resulting from the deficiency or deficiencies  The severity of a deficiency does not depend on whether a misstatement actually has occurred but on whether there is a reasonable possibility that the entity’s controls will fail to prevent or detect and correct a misstatement of an account balance or disclosure. Significant deficiencies and material weaknesses may exist even though we have not identified misstatements during the audit. The evaluation of whether a deficiency in internal control presents a reasonable possibility that a misstatement may occur may be made without quantifying the probability of occurrence as a specific percentage or range., # SOCD : Evaluate control deficiencies
  ##  1 Significant deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)
   <REQUIREMENT> When we identify one or more control deficiencies, we determine, on the basis of the audit procedures performed, whether individually or in combination, they constitute a  significant deficiency (or  material weakness if required to be communicated in the jurisdiction) in internal control.   ISA 265.8, AICPA AU-C 265.09</REQUIREMENT> <REQUIREMENT>
We evaluate the severity of all identified control deficiencies to reach an overall conclusion as to whether control deficiencies, individually or in combination, are significant deficiencies or material weaknesses as of the date of management’s assessment. We are not required to search for deficiencies that, individually or in combination, are less severe than a material weakness. However, as part of our responsibilities for communication with those charged with governance, we consider whether there are any deficiencies, or combinations of deficiencies, that have been identified during the audit that are significant deficiencies (refer to  SOCD 4).   PCAOB AS 2201.62
</REQUIREMENT> As defined in the ISAs, a significant deficiency in internal control is a deficiency, or a combination of deficiencies, in internal control that, in our professional judgment, is of sufficient importance to merit the attention of those charged with governance.    As defined in US auditing standards, a significant deficiency in internal control is a deficiency, or a combination of deficiencies, in internal control that, in our professional judgment, is less severe than a material weakness, yet is of sufficient importance to merit the attention of those charged with governance. As defined in US auditing standards, a material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the entity’s annual financial statements will not be prevented or detected on a timely basis.,  # 3E_3.5 Internal control report modifications [AICPA audits ending prior to 15 December 2021, All PCAOB audits]
  ## 3E_3.5 Non-Issuers Example 1 - Disclaimer of opinion on internal control over financial reporting- scope limitation
   Because of the matter described above, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. However, a material weakness has been identified. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's financial statements will not be prevented, or detected and corrected, on a timely basis. If one or more material weaknesses exist, a company's internal control over financial reporting cannot be considered effective. The following material weakness has been included in the accompanying [ title of management's report]. [ Identify the material weakness described in management's report and include a description of the material weakness, including its nature and its actual and potential effect on the presentation of the entity's financial statements issued during the existence of the material weakness.] In addition, we include the following sentence in the Report on Financial Statements section: We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the [ indicate year, e.g., “20X7”] financial statements, and this report does not affect such report on the financial statements.  If, through the limited procedures we performed, we conclude that a material weakness exists that has not been identified by management, we indicate this fact in our report and we include a description of the material weakness:   Material Weakness  In performing our procedures, the following material weakness has been identified that was [ if management does not issue a report state, “not identified by management”, if management has issued a report but has not identified the material weakness state “not included in (title of management’s report)”]. [ Include a description of the material weakness, including its nature and its actual and potential effect on the presentation of the entity’s financial statements issued during the existence of the weakness.] A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented, or detected and corrected, on a timely basis. If one or more material weaknesses exist, a company's internal control over financial reporting cannot be considered effective.  In addition, we include the following sentence in the Report on Financial Statements section: We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the [ indicate year, e.g., “20X7”] financial statements, and this report does not affect such report on the financial statements. , # 8-11 Update and evaluate controls
  ##  8 Address control exceptions
   ###  8.2 Determine audit response to control exceptions
When we have identified a control deficiency, before concluding on an appropriate audit response, we consider each of the following:   The nature and severity of the deficiency (e.g., do the facts and circumstances indicate that the deficiency could be a significant deficiency (or material weakness if required to be communicated in the jurisdiction) if not remediated)  The nature of the control (e.g., manual or automated control) and the nature and timing of the remediation (e.g., was the deficiency identified late in the year, or was it identified early in the year but management failed to remediate it earlier)  Whether we believe the control is operating effectively as of period end and whether the evidence we would obtain from a lower extent of testing provides a basis for such a conclusion    If a remediated control would otherwise represent a material weakness, the CAML is available to assist the team in developing the appropriate remediation testing strategy.
If the identified control deficiency has been remediated prior to period end, it will not be evaluated further as part of our period end assessment of the effectiveness of internal control over financial reporting. However, if the control deficiency has not been remediated and tested before period end, we further evaluate the control deficiency to determine if it constitutes a significant deficiency (or material weakness). Even if a control is successfully remediated before period end, we reconsider our financial statement audit strategy because the control was not operating effectively throughout the entire audit period.

,  # INTEGRATED AUDIT - Reports on internal control over financial reporting [effective for AICPA audits of periods ending on or after 15 December 2021]
  ##  5 Internal control report modifications
   ###  5.1 One or more material weaknesses exist
    ####  5.1.1 Effect of material weakness on prior periods
  Management may determine that a material weakness identified in the current year also was present in one or more previous assessment periods. When describing the potential effects on the financial statements issued during the existence of the material weakness, it is not necessary or appropriate to describe the effects of the material weakness on the earlier periods unless there also is a restatement of the prior year financial statements that coincides with the discovery of the material weakness. The annual assessment of internal control over financial reporting is not intended to be a comparative presentation and the current year assessment in effect supersedes the previous assessment.  ####  5.1.2 Management unable to assess controls
  Management’s inability to assess certain controls over financial reporting that should have been included in management’s assessment represents a control deficiency in the control environment and monitoring components of internal control over financial reporting that we must evaluate as to significance. If the transactions or balances subject to controls that management is unable to assess are material to the entity’s financial statements, we ordinarily would determine that this control deficiency represents a material weakness. Refer to  INTEGRATED AUDIT 5.3.1 for further requirements and guidance.  ####  5.1.3 Management remediates material weakness too late to test
  We may encounter a situation where management identifies and remediates a material weakness too late for them or us to test the new control prior to the filing date. We would conclude that, absent evidence that the control has been remediated, the material weakness still exists.  If management concludes that internal control is ineffective and appropriately identifies the material weakness in its report, we issue an adverse opinion on the effectiveness of internal control over financial reporting.  Refer to  Appendix 2.2.4 – INTEGRATED AUDIT – Illustration 9 for an example report.,  # 3.6 Adverse opinion on the effectiveness of internal control over financial reporting [AICPA audits ending prior to 15 December 2021, All PCAOB audits]
  ## 3.6.1 General guidance
   ### 3.6.1.1 Effect of material weakness on prior periods
  Management may determine that a material weakness identified in the current year also was present in one or more previous assessment periods. When describing the potential effects on the financial statements issued during the existence of the material weakness, it is not necessary or appropriate to describe the effects of the material weakness on the earlier periods unless there also is a restatement of the prior year financial statements that coincides with the discovery of the material weakness. The annual assessment of internal control over financial reporting is not intended to be a comparative presentation and the current year assessment in effect supersedes the previous assessment.   ### 3.6.1.2 Management unable to assess controls
  Management’s inability to assess certain controls over financial reporting that should have been included in management’s assessment represents a control deficiency in the control environment and monitoring components of internal control over financial reporting that we must evaluate as to significance. If the transactions or balances subject to controls that management is unable to assess are material to the entity’s financial statements, we ordinarily would determine that this control deficiency represents a material weakness. Refer to RM  3.5.3.2 Scope limitations imposed by circumstances for further requirements and guidance.  ### 3.6.1.3 Management remediates material weakness too late to test
  We may encounter a situation where management identifies and remediates a material weakness too late for them or us to test the new control prior to the filing date. We would conclude that, absent evidence that the control has been remediated, the material weakness still exists. If management concludes that internal control is ineffective and appropriately identifies the material weakness in its report, we issue an adverse opinion on the effectiveness of internal control over financial reporting. Refer to   [Issuers]  RM 3E_3.6 Issuers Example 1 [Issuers]  [Non-Issuers]  RM 3E_3.6 Non-Issuers Example 1 [Non-Issuers] for an example report.,  # Amendments to Rules Regarding Management's Report on Internal Control Over Financial Reporting, Release Nos. 33-8809; 34-55928; FR-76, 6/27/2007
  ## I. BACKGROUND
     3. Final Rule After consideration of the comments received, we have determined that it is appropriate for the Commission's rules to include the definition of material weakness since it is an integral term associated with Sarbanes-Oxley and the Commission's  implementing rules. Management's disclosure requirements with respect to ICFR are predicated upon the existence of a material weakness; therefore, we agree with the commenters' suggestion that our rules should define this term, rather than refer to auditing literature. As a result, we are amending Exchange Act Rule 1 2b-2 and Rule 1- 02 of Regulation S-X to define the term material weakness. We have decided to adopt the material weakness definition substantially as proposed. The Commission has determined that the proposed material weakness definition appropriately describes those conditions in ICFR that, if they exist, should be disclosed to  investors and should preclude a conclusion that ICFR is effective. Therefore, our final rules define a material weakness as a deficiency, or a combination of deficiencies, in ICFR such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will  not be prevented or detected on a timely basis.  <SL_331988959-499196> <SL_331988960-499196>Exchange Act Rule 1 2b-2 and Rule 1-02(p) of Regulation S-X.   We anticipate that the PCAOB's auditing standards will also include this definition of material weakness. After consideration of the proposed alternatives to the "reasonable possibility" standard in the proposed definition of material weakness, we decided not to change the proposed standard. Revisions that have the effect of increasing the likelihood  (that  is, risk) of a material misstatement in a company's financial reports that can exist before being disclosed could give rise to questions about the meaning of a disclosure that ICFR is effective and whether the threshold for "reasonable assurance" is  being  lowered. Moreover, we do not believe improvements in efficiency arising from revisions to the likelihood element would be significant to the overall ICFR evaluation effort, due, in part, to our view that the effort evaluating deficiencies would be similar  under the alternative standards (for example, "reasonable possibility" as compared to "reasonable likelihood"). Lastly, we do not believe the volume of material weakness disclosures, which has declined each year since the initial implementation of Section 404 of SarbanesOxley, is too high such that investors would benefit from a reduction in disclosures that would result from a higher likelihood threshold. Regarding the reference to interim financial statements in the definition of material weakness, while we believe annual materiality considerations are appropriate when making judgments about the nature and extent of evaluation procedures, we believe  that the judgments about whether a control is adequately designed or operating effectively should consider the requirement to provide investors reliable annual and quarterly financial reports. Moreover, if management's annual evaluation identifies a  deficiency that poses a reasonable possibility of a material misstatement in the company's quarterly reports, we believe management should disclose the deficiency to investors and not assess ICFR as effective. As such, we have not removed the reference to  interim financial statements from the definition of material weakness. In response to the comments regarding the need for the Commission to define the term "significant deficiency," we are seeking additional comment on a definition of that term as part of a separate release issued in the Federal Register.
sentences: Level of Evidence to be considered from substantive procedures, if we identify an exception, hoow can we determine that the exception falles under deficiency, weakness or material weakness, In what way we docuement the IPE risk of being inaccurate and incomplete, source_sentence: # PMTE: PM, TE and SAD nominal amount
  ## Purpose
   Materiality is the magnitude of an omission or misstatement that, individually or in the aggregate, in light of the surrounding circumstances, could reasonably be expected to influence the economic decisions of the users of the  financial statements. We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.   PCAOB AS 2105.03 As we develop our  audit strategy, we determine materiality at both:   The overall level for the financial statements as a whole –  planning materiality (PM)   The individual account or balance level –  tolerable error (TE) We set TE to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds PM. We also use TE as an estimate of undetected misstatements within the financial statements when we conclude on uncorrected misstatements. If we identify accounts or disclosures for which misstatements of less than PM could be expected to influence the economic decisions of users of the financial statements, we develop our audit strategy at the  significant account or disclosure level using a lower level of materiality that responds to that expectation, rather than modifying PM.  In addition to determining PM and TE, we determine an amount below which identified misstatements are considered  clearly trivial. We call this the SAD nominal amount. If materiality for specific accounts or disclosures is set at an amount lower than the  SAD nominal amount, we use materiality related to those accounts or disclosures as the amount which identified misstatements are considered clearly trivial. The determination of PM and TE is not a mathematical exercise but requires  professional judgment involving  audit executives, including the partner in charge of the audit.  In recurring audits, we determine materiality earlier in our audit as we use our understanding of the entity and knowledge about the users of the financial statements from prior periods. We start from the point of using the same measurement basis and percentages for determining PM and TE as we have used in prior periods, and consider:   Significant changes in the business (e.g., acquisitions, disposals, debt issuance)  Significant changes in the markets and environment  Changes in the users of the financial statements and in their expectations
,  # US A&A News - 13 January 2022
  ## Audit and other internal-only matters
  ### Audit reminders in light of SEC staff’s increased scrutiny of registrants’ evaluations of materiality in error corrections
  Audit teams should be aware that the SEC staff has increased its scrutiny of registrants’ evaluations of the materiality of errors identified in the historical financial statements, how the errors are corrected and the related internal control assessments. Teams also should be aware of the views that the SEC staff recently expressed about how to evaluate and correct these errors in accordance with Staff Accounting Bulletin 1.M,  Materiality. The staff’s views are described in our 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments  publication and summarized in  SEC in Focus – January 2022. In addition to focusing on the matters addressed by the SEC staff, audit teams should refer to  EY GAM MISSTATE:  Misstatements and summary of audit differencesand consider the following as they complete current-year audits or evaluate identified errors in current or prior period financial statements:   It is a best practice for companies to correct any errors identified during the financial statement close process and the completion of the audit or review of the financial statements. Correcting these errors before the financial statements are issued will mitigate the risk that the errors could accumulate over time to become material or result in a material misstatement when aggregated with other immaterial errors identified in subsequent periods. Teams should also consider that the current and historical Summary of Audit Differences is considered when assigning an overall engagement risk rating in the client continuance process.  Qualitative considerations should be thoughtfully considered before reaching a conclusion on the materiality of errors. Qualitative factors may result in a conclusion that a quantitatively small error is material. Teams should consider the qualitative factors in  MISSATE 4.2, the entity’s facts and circumstances, and the users of the financial statements when concluding on the materiality of errors.  Quantitative and qualitative considerations are also important as we evaluate the significance of misstatements in disclosures, including our evaluation of whether they merit the attention of those charged with governance and their potential effect on the decisions of users of the financial statements as described in  MISSTATE 4.7.  Regardless of whether a consultation is required by  MISSTATE 7, teams need to document their evaluation of the effect of uncorrected misstatements, individually and in the aggregate, on the financial statements, including consideration of qualitative factors. Refer to  EY GAM MISSTATE for related documentation requirements and enablement. Region Professional Practice is available to help engagement teams if there are questions about the evaluation of the materiality of errors identified in the current or historical financial statements.   ### Updated archiving reminders
  The archiving reminders have been updated for all audits. These reminders address topics such as Change in days to archive, Managing review notes in EY Canvas, Personally identifiable information and the requirements for using automated techniques, required forms and team discussion, and EY Canvas reminders. Audit teams should consider reviewing these reminders before the conclusion stage of the audit. The reminders can be found on the Documentation and archive topic page in  EY Atlas.,  # EY Private FAQs [US]
  ## Planning Materiality (PM)
  ### When a different measurement basis is determined to be appropriate for the current period audit as compared to the prior period audit and the change results in a significant increase to materiality, are there incremental considerations or requirements prior to concluding on materiality? [10 December 2020]
  When we determine that a different measurement basis is appropriate for the current period compared to the prior period and the PM amount is substantially different from that used in the prior period, we must have a clear rationale as to why such a difference is appropriate. We are now required to document our rationale for using a different measurement basis from that used in prior periods when it results in a PM amount that is substantially different from that used in prior periods. EY Form 105-Post  Planning materiality can be used to complete this documentation. An example of a completed Form 105-Post can be found  here.  ### Are the ranges for PM for entities using the startup guidance changing as well? [10 December 2020]
  Yes. For start-up entities, the upper end of the range for the assets measurement basis has changed from 2% to 3%. We are required to consult with a Professional Practice Director assigned to the Region before using the guidance on determining PM for start-up entities each year we apply this guidance. This requirement has not changed.,  # Other auditing matters (Consultations)
  ## Access to workpapers when we are successor auditor
   ### Supplemental industry matters
  #### Governmental entities
  To determine whether we can serve as the principal auditors when we have not been engaged by the primary government as the auditor of the financial reporting entity and have not been engaged to audit the primary government’s general fund (or the primary operating fund). [ EY GAM GROUP-Government and Public Sector GROUP ENGAGE]  Consult with: PPP-R   N/A  ##### Financial services entities (see definition in EE7505)
  ######  All financial services entities affected by Rule 206(4)-2 of the Investment Advisers Act of 1940 (the Custody Rule)
  When we identify compliance exceptions during our examination that may be strong indicators of material non-compliance for surprise examination engagements used to satisfy Rule 206(4)-2 of the Investment Advisers Act of 1940 (the Custody Rule), due to the requirement for us to report material non-compliance to the SEC within 1 business day of determining such material non-compliance exists. [ US RM 10.5;  EY IL857]  Consult with: PPD-FSO   N/A  #### Asset Management
  #####  Fund of fund audits
  When we audit a highly concentrated fund of funds (less than 5 underlying fund investments) where an EYG member firm does not audit at least 50% of the underlying funds based on percentage of net assets and we have not consulted previously. This consultation is required in the first year a fund of funds meets these criteria. This consultation is also required for the first audit period as successor auditors, if these criteria are met. The decision to consult in a subsequent year is a matter of professional judgment of the partner in charge of the audit and other executive members of the audit team based on a fund of fund’s audit client’s specific facts and circumstances. [ AS-GUIDANCE AS_6.6.5]  Consult with: PPP-R   N/A  #####  Planning materiality for late-stage fund audits
  If we determine that the most appropriate measurement basis for planning materiality uses activity that is disclosed in the financial statements but which has occurred outside of the periods presented in the financial statements (i.e., outside the periods presented in the statements of operations and changes in net assets) for a late-stage fund (e.g., cumulative distributions capped at cumulative contributions). [ EY GAM PMTE – Asset management 1.6]  Consult with: PPP-R   N/A,  # Office of Chief Accountant
  ## Roberson, Brian K.
   ### Quantification of Errors
    You may have noticed that this reference to auditing literature is the first time I have mentioned auditing. That is because quantifying errors and evaluating materiality is first a responsibility of the registrant. Auditors need to ensure that they properly quantify and evaluate errors in the process of their audit, but registrants are responsible for preparing materially correct financial statements. One last area I would like to touch on in the materiality arena is the materiality disclaimer at the end of each FASB standard. In line with my previous comments regarding the consideration of future periods, registrants should ensure they are thinking about future periods when using the materiality disclaimer. For example, not straight-lining lease payments may be immaterial in the current year, but if it will become material in future periods due to lower or higher rents in the later years, you should ensure that you get the accounting right before the differences become material. You also need to ensure that you are continually updating your assessment as to whether or not applying a standard is immaterial. Said another way, the fact that not applying a particular provision in GAAP is immaterial in one period is not a lifetime pass to never apply the provision - instead, materiality should be reconsidered each period. And one further thought. If you are availing yourself of the materiality disclaimer because you do not like what the standard would do to your financial statements, then you are not applying the disclaimer properly. In that case, you have essentially admitted that you believe that not applying the standard would cause users to view your financial statements differently, which, by definition, makes the difference material.,  # Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors
  ##  Objective Assessment of Materiality
  Since the concept of materiality is focused on the total mix of information from the perspective of a reasonable investor, those who assess the materiality of errors, including registrants, auditors, audit committees, and others, should do so through the lens of the reasonable investor. To be consistent with the concept of materiality, this assessment must be objective. A materiality analysis is not a mechanical exercise, nor should it be based solely on a quantitative analysis. Rather, registrants, auditors, and audit committees need to thoroughly and objectively evaluate the total mix of information. Such an evaluation should take into consideration all relevant facts and circumstances surrounding the error, including both quantitative and qualitative factors, to determine whether an error is material to investors. An objective analysis should put aside any potential bias of the registrant, auditor, or audit committee that would be inconsistent with the perspective of a reasonable investor. For example, a restatement of previously-issued financial statements may result in the clawback of executive compensation, reputational harm, a decrease in the registrant's share price, increased scrutiny by investors or regulators, litigation, or other impacts. An assessment where a registrant's, auditor's, or audit committee's biases based on such impacts influenced a determination that an error is not material to previously-issued financial statements so as to avoid a Big R restatement would not be objective and would be inconsistent with the concept of materiality. One area where the staff in OCA have observed an increased need for objectivity is in the assessment of qualitative factors. The interpretive guidance on materiality in SAB No. 99 speaks to circumstances where a quantitatively small error could, nevertheless, be material because of qualitative factors. However, we are often involved in discussions where the reverse is argued—that is, a quantitatively significant error is nevertheless immaterial because of qualitative considerations. We believe, however, that as the quantitative magnitude of the error increases, it becomes increasingly difficult for qualitative factors to overcome the quantitative significance of the error. We also note that the qualitative factors that may be relevant in the assessment of materiality of a quantitatively significant error would not necessarily be the same qualitative factors noted in SAB No. 99 when considering whether a quantitatively small error is material. So it might be inappropriate for a registrant to simply assess those qualitative factors in reverse when evaluating the materiality of a quantitatively significant error. Such a scenario highlights the importance of a holistic and objective assessment from a reasonable investor's perspective.,  # US A&A News - 20 April 2023
  ## Audit and other internal-only matters
   ### Reminder about change in PMTE start-up entities consultation requirement
  The start-up entities consultation requirement in EY GAM  PMTE 1.2c has been revised and audit teams are now required to consult with a Professional Practice Director assigned to the Region  (Regional PPD) only when significant judgment is involved in determining whether the entity has the characteristics of a start-up entity as described in  PMTE 1.2c. Previously, the consultation was required each year before determining planning materiality (PM) for start-up entities when we applied the guidance in  PMTE Appendix 2. As discussed in our  5 April 2023 Special edition A&A News, this change is expected to make the evaluation of whether significant judgment is involved, particularly for pre-revenue entities in the product development stage, more straightforward, and the audit team may not be required to consult. Additional guidance and examples have also been added in  PMTE 1.2c to assist audit teams in making this determination.  ### Updated EY centralized pricing service analysis memorandum
  The  EY centralized pricing service analysis memorandum that summarizes the procedures Ernst & Young LLP (the US Firm) has performed to support our conclusions about whether we can use the information provided by certain pricing services as audit evidence has been updated. The procedures address aspects of certain requirements in  AS_6.6  Auditing investments, including alternative investments and reflect monthly inquiries of the pricing vendors. The US Firm performed the centralized procedures for the following vendors:  ICE Data Pricing & Reference Data, LLC (ICE) Refinitiv Datascope (Refinitiv) S&P Markit (Markit) Bloomberg Evaluated Pricing Service System (Bloomberg or BVAL) PricingDirect Inc. (JP Morgan Pricing Direct or JPD) Merrill Lynch Valuations, LLC (PriceServe) Section 2 and Section 3 of the EY centralized pricing service analysis have been updated to reflect their applicability to AICPA audits following the issuance of SAS No. 144,  Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources, which is effective for audits of periods ending on or after 15 December 2023. This aligns with the updates recently made to AS_6.6.4.5.3,  Evaluating the valuation process used by the pricing service, and AS_6.6.8,  Auditing the valuation of exchange-traded investments. We use this memorandum to support our conclusions by either retaining it in EY Canvas or referring to it in our workpapers.,  # Qualifications of Accountants, Release Nos. 33-10876; 34-90210; FR-88; IA-5613; IC-34052, 12/11/2020
  ## II. Amendments
     Under the existing and amended rules, Hold Co. is an affiliate of the audit client (i.e., Hold Co. has control over the entity under audit) and, as such, also is an audit client. A practitioner might then apply the control provision in amended Rule  2-01(f)(4)(i) to Hold Co. and deem both Entities A and B as affiliates of the audit client, regardless of the dual materiality threshold in amended Rule 2-01(f)(4)(ii). Again, the practitioner may deem Entities A and B to be affiliates because "audit client"  Hold Co. controls both Entities A and B.   Relatedly, when assessing whether Entities A and B are affiliates under amended Rule 2-01(f)(4)(ii), it may otherwise be unclear to a practitioner assessing materiality of the "audit client" whether  such assessment applies to the entity under audit or an affiliate (such as Parent 1). Absent clarification, the above-illustrated application (i.e., circular reading) of the final amendments could negate the Commission's objective to focus the common control provision on those relationships and services that are more likely to threaten the  objectivity and impartiality of an auditor by introducing a dual materiality threshold. While the proposal did not use the term "entity under audit" in the rule text, we believe this modification is consistent with the proposal to separate out common  control from existing Rule 2-01(f)(4)(i) and include a materiality provision within the definition. Now that the amended common control provision includes a dual materiality threshold, we believe the modification to use the term "entity under audit"  in place of the term "audit client" in amended Rules 2-01(f)(4)(i) and (ii) is important to avoid any misunderstandings about how the common control provision should be applied in the final amendments. While some commenters requested that we further amend our rules to incorporate more precise usage of the term "entity under audit"   See supra note 51.  in other paragraphs that currently refer to the "audit client," those requests  are beyond the scope of this rulemaking. We did not propose or seek comment on those particular amendments. Moreover, those additional amendments are not necessary to effectuate any aspect of the proposal. As such, we are not incorporating the term "entity  under audit" into other paragraphs of the rule that currently refer to "audit client," including the significant influence provisions of amended 17 CFR 210.2-01(f)(4)(iii) ("amended Rule 2-01(f)(4)(iii)") and 17 CFR 210.2-01(f)(4)(iv) ("amended  Rule 2-01(f)(4)(iv)"). However, the incorporation of "entity under audit" in amended Rules 2-01(f)(4)(i) and (ii), while leaving the term "audit client" within the significant influence provisions in amended Rules 2-01(f)(4)(iii) and (iv), does  not imply a change from the historical practical application of these provisions, which has focused and should continue to focus on the entity under audit.   Assessing Materiality and Monitoring Several commenters requested clarification and examples of the application of the proposed amendments, including the proposed materiality qualifier. In response, we are providing several examples to illustrate the application of the final amendments to particular  fact patterns.,  # Qualifications of Accountants, Release Nos. 33-10876; 34-90210; FR-88; IA-5613; IC-34052, 12/11/2020
  ## II. Amendments
   Some commenters also suggested that we incorporate a materiality qualifier in the evaluation of whether controlling entities would be considered affiliates, similar to analogous provisions in the AICPA and IESBA ethics and independence requirements. While commenters cited the benefits of having a common regime for the consideration of controlling entities, we were not persuaded that the benefits from such conformity would justify the  potential risk to an auditor's objectivity and impartiality in these circumstances. In particular, commenters did not specifically highlight ongoing monitoring or other compliance challenges associated with the identification of affiliates that control an  entity under audit. It does not appear that the challenges related to the changing population of potential affiliates and the ability to obtain appropriate information that occur in the common control context also exist when evaluating entities that have control  over the entity under audit. In addition, the relationship between sister entities and an entity under audit is generally different than the relationship between a controlling entity and the entity under audit. The controlling entity typically has some decision-making  ability or an ability to influence the entity under audit. As such, we believe an auditor's independence likely would be impaired if the auditor provides non-audit services to or engages in relationships with the controlling entity that are described in Rule  2-01(c), even in situations in which the entity under audit is not material to the controlling entity. Accordingly, we are not adopting commenters' recommendations to incorporate a materiality qualifier in the evaluation of whether controlling entities should  be considered affiliates.   Entity Under Audit We are making modifications to incorporate the term "entity under audit" within amended 17 CFR 210.2-01(f)(4)(i) ("amended Rule 2-01(f)(4)(i)") and amended 17 CFR 210.2-01(f)(4)(ii) ("amended Rule 2-01(f)(4)(ii)"). Given the comments received  on this point and in light of other changes we are making to the final amendments, we believe it is appropriate to replace the term "audit client" with "entity under audit" in amended Rules 2-01(f)(4)(i)  and (ii). Specifically, as illustrated in the example below, we are concerned that if we do not revise this terminology, it could be applied in a manner that would negate the adopted dual materiality threshold.   fedreg_33-108766_pg19.pdf In Figure 1, assume the controlling entities (i.e., Parent 1 and Hold Co.) have control over all entities downstream from them. If amended Rules 2-01(f)(4)(i) and (ii) referred to an "audit client" instead of an "entity under audit," Sister 1  may be deemed an affiliate of the audit client regardless of the materiality of Sister 1 or the Entity Under Audit to Parent 1 based on the following application:   Parent 1 controls the entity under audit, which makes Parent 1 an affiliate of the audit client. Parent 1 also is an "audit client" because the definition of such term includes affiliates. A practitioner might then apply the control provision  in amended Rule 2-01(f)(4)(i) to Parent 1 and deem Sister 1 an affiliate of the audit client, regardless of the dual materiality threshold. The practitioner would consider Sister 1 an affiliate because it is controlled by "audit client" Parent 1 without  applying the materiality analysis in the common control provision of amended Rule 2-01(f)(4)(ii). Similarly, Entities A and B may be deemed affiliates of the audit client regardless of the materiality of Entity A, Entity B, or the entity under audit to Hold Co. based on the following application:,  # Qualifications of Accountants, Release Nos. 33-10876; 34-90210; FR-88; IA-5613; IC-34052, 12/11/2020
  ## II. Amendments
   Although some commenters objected to including a materiality threshold in the ICC amendments, we do not believe the adopted approach increases the risk to auditor independence. When an entity under audit is under common control with an investment company,  or an investment adviser or sponsor, and the adopted dual materiality threshold is not met, we believe there is less risk to an auditor's objectivity and impartiality from the auditor's services to or relationships with such sister entity, for the reasons  discussed regarding the dual materiality threshold for the common control provision in the affiliate of the audit client definition.   Rule 2-01(f)(14)(i)(D) retains the existing provision that includes sister entities engaged in the business of  providing administrative, custodian, underwriting, or transfer agent services to any entity identified by amended 17 CFR 210.2-01(f)(14)(i)(A) ("amended Rule 2-01(f)(14)(i)(A)") and amended 17 CFR 210.2-01(f)(14)(i)(B), regardless of materiality.  Further,  we believe any threats to independence that may exist when the entity  Rule 2-01(b).   One commenter sought clarification about whether Rule 2-01(f)(14) would apply to engagements required by Rule 206(4)-2(a)(6) under the Investment Advisers Act of 1940 (the "Advisers Act Custody Rule"). See letter from EY; 17  CFR 275.206(4)-2(a)(6). The Advisers Act Custody Rule requires  that when an investment adviser or a related person acts as a qualified custodian for client funds and securities, the investment adviser, in addition to the independent verification requirement, must annually obtain, or receive from the related person, an  internal control report prepared by an independent public accountant. The Advisers Act Custody Rule defines a "related person" as "any person, directly or indirectly, controlling or controlled by [the investment adviser], and any person that  is under  common control with [the investment adviser]." 17 CFR 275.206(4)-2(d)(7). For purposes of this engagement, the related person qualified custodian would be the "entity under audit" under the final rule. Accordingly, the auditor engaged would  apply  amended Rule 2-01(f)(4)—not amended Rule 2-01(f)(14)—to determine the affiliates of the audit client, which would require the auditor to assess the investment adviser's materiality if under common control. In these circumstances, however, the accountant  would be required to be independent of the adviser under Rule 2-01(b) regardless of the results of this materiality determination. In response to commenters' request for guidance, consistent with the discussion in Section II.A.1.a.iii above, we remind auditors and their audit clients of their shared responsibility to monitor independence, including monitoring affiliates and obtaining  information necessary to assess materiality. We are not providing any specific guidance on materiality at this time because we understand that auditors and their audit clients have developed approaches to determine materiality in compliance with current rules,  and we expect those approaches would continue to be applicable under the final amendments. Auditors, working together with their audit clients, should assess materiality for the purpose of complying with Rule 2-01, as amended, including consideration of relevant  qualitative and quantitative factors. Depending on the circumstances, it may be reasonable to use certain measures, such as assets under management, when evaluating a potential affiliate in one instance, but not when evaluating a different potential affiliate.  The assessment also should be attentive to the nature of the relationship, the governance structure of the entity, certain business and financial relationships, and other relevant qualitative considerations. As noted in Section II.A.1.a.iii, understanding the organizational structure of an audit client is important when considering the general standard under Rule 2-01(b). We believe that after the initial materiality assessment to identify potential affiliates,  the auditor and the audit client should conduct updated assessments based on any transactions, Commission filings, or other information that become known to the auditor or the audit client through reasonable inquiry.   New 17 CFR 210.2-01(f)(14)(i)(F) — The Provision To Include Investment Companies Advised or Sponsored by an Affiliate Investment Adviser or Sponsor
sentences: What is the need for selecting representative samples while performing testing, Do we change the materiality of the audit in later stage of the audit, what is an it dependent manual control, source_sentence:  # ASC 820 Fair value measurement
  ## Highlights of US GAAP and other references
   ASC 820 defines the term   fair value in US GAAP and provides a principles-based framework for measuring fair value. It also requires various disclosures about an entity’s fair value measurements. ASC 820 does not address the issue of “what” to measure at fair value.  The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date). Fair value is a market-based measurement, not an entity-specific measurement. As such, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. A reporting entity’s intention to hold an asset or to settle or otherwise fulfill a liability is not relevant when determining fair value. Valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs.,  # Topic No. 5: Staff Observations Regarding Disclosures of Smaller Financial Institutions
  ## Asset Quality / Loan Accounting Issues
   ### Loans Measured for Impairment Based on Collateral Value
  GAAP requires creditors to measure a loan for impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.   See  ASC 310-10-35-32. In addition, GAAP allows a creditor to measure an impaired loan on which the repayment of the loan is expected to be provided solely by the underlying collateral (i.e., a collateral-dependent loan) based on the fair value of the collateral.   See  ASC 310-10-35-22. For registrants with significant loan portfolios that they measure for impairment based on the collateral value, we may ask them to describe:  How and when they obtain third-party appraisals, and how the appraisals impact the amount and timing of any provision or charge-off; The types of appraisals they obtain, such as “retail” value or “as-is” value; What procedures they perform between receiving updated appraisals to ensure that they appropriately measure loan impairments; If applicable, the reasons they do not obtain appraisals in a timely manner; The typical timing of classifying loans as nonaccrual, recording any provision for loan loss, or recognizing a charge-off; How they determine the amount to charge off; How they classify and account for partially charged off loans after receiving an updated appraisal. For example, we may ask a registrant to explain whether the loans are returned to performing status or whether the loans remain in nonperforming status; The reasons they make any adjustments to appraised values when calculating impairment; and What procedures they perform to estimate the fair value of the collateral when they do not use external appraisals or have not obtained updated appraisals.  ### Credit Risk Concentrations
  GAAP requires disclosure of all significant concentrations of credit risk arising from financial instruments, whether from an individual counterparty or groups of counterparties.   See  ASC 825-10-50-20. Some registrants have a small number of loans making up a significant portion of their recorded investment in nonaccrual loans. We may ask those registrants to discuss:  The types of concentrations that exist, such as geographies, industries, collateral types, product types, or borrower types (e.g., commercial developers, residential land developers, commercial businesses, etc.); The types of collateral securing the loans; The amount of total credit exposure; The allowance for the impaired loans; Whether the loans are guaranteed and what procedures they perform to evaluate the guarantors’ ability and willingness to repay the balance owed; and Any special circumstances surrounding the loans, such as whether the loans relate to properties out of the registrant’s normal market area and whether the loans are related to the registrant’s participation in a larger loan underwritten by another financial institution.,  # R6.4 Measuring the gain or loss
  ##  R6.4.1 Determining the transaction price
   ###  R6.4.1.3 Noncash consideration
    The consideration received might be in the form of goods, services or other noncash consideration (e.g., property, plant and equipment; a financial instrument). When an entity (i.e., the seller) receives, or expects to receive, noncash consideration, the fair value of the noncash consideration at contract inception is included in the transaction price.  This statement applies to transactions that are in the scope of  ASC 610-20. This guidance does not apply to nonreciprocal transactions, exchanges of financial assets that are outside the scope of  ASC 860, nonmonetary service transactions and exchanges of like-kind inventory between entities in the same line of business, which are in the scope of  ASC 845. The Board decided  Paragraph BC39 of  ASU 2016-12. not to specify how the fair value of noncash consideration should be measured (e.g.,  ASC 606 does not require an entity to apply  ASC 820), in part because the form of noncash consideration varies widely. Rather, the FASB observed that the concept of fair value exists in other parts of ASC 606 (e.g., the guidance on consideration payable to a customer) and that choosing the appropriate basis for measuring the fair value of noncash consideration requires judgment. If an entity cannot reasonably estimate the fair value of noncash consideration, it should measure the noncash consideration indirectly by reference to the standalone selling price of the promised nonfinancial assets or ISNFAs. For contracts with both noncash and cash consideration, an entity will only use fair value principles to measure the value of the noncash consideration and will look to other guidance within ASC 606 for the cash consideration. The Board also noted  Paragraph BC39 of  ASU 2016-12. that an entity should consider the accounting guidance in  ASC 815 to determine whether an arrangement with a right to noncash consideration contains an embedded derivative. Because noncash consideration is measured at contract inception, any changes in the fair value of noncash consideration due to its form (e.g., a change in the price of a share an entity is entitled to receive from a counterparty) after contract inception are recognized following the relevant US GAAP guidance for the form of the noncash consideration (e.g.,  ASC 321 if the noncash received is an equity security). That is, entities should apply the relevant US GAAP guidance to determine whether and how any changes in fair value that occurred after contract inception due to the form of noncash consideration received or receivable from the transaction should be recognized.  Paragraph BC40 of  ASU 2016-12. The fair value of noncash consideration could change both because of the form of consideration (e.g., a change in the price of a share an entity is entitled to receive from a counterparty) and for reasons other than the form of consideration (e.g., a change in the exercise price of a share option because of the entity’s performance). Under the standard, the variable consideration guidance applies only to variability resulting from reasons other than the form of consideration (i.e., there is uncertainty about whether the entity will be entitled to the noncash consideration if a future event occurs or does not occur). The FASB decided  Paragraph BC252 of  ASU 2014-09 and paragraph BC42 of  ASU 2016-12. that entities should apply the variable consideration guidance to the same types of variability, regardless of the form (i.e., cash or noncash) in which the consideration will be received.,  # B1.1.2 Identifying business combination transactions
  ##  B1.1.2.1 What is a business combination?
   ###  B1.1.2.1.3 Definition of a business (updated June 2021)
    ####  B1.1.2.1.3.1 Applying the ‘substantially all‘ threshold (updated June 2021)
         Excerpt from Accounting Standards Codification    Business Combinations — Overall   Implementation Guidance and Illustrations    805-10-55-5A If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. Gross assets acquired should exclude cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities. However, the gross assets acquired should include any consideration transferred (plus the fair value of any noncontrolling interest and previously held interest, if any) in excess of the fair value of net identifiable assets acquired. The graphic below summarizes how to apply the “substantially all” threshold (Step 1):   The guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set is not a business and does not require further evaluation. We believe entities would apply  ASC 805 to measure the assets in the set (including the measurement exceptions) for the purpose of applying the threshold. The term “substantially all” is intended to be applied consistently with how it is used in other areas of US GAAP (e.g.,  ASC 606,  ASC 810) and entities should consider how “substantially all” is applied in its existing accounting policies in such areas. Entities will need to apply judgment to determine what is considered “substantially all” because the standard does not provide a bright line for making this assessment. An entity also should consider how the inherent estimation uncertainty of its valuations of assets acquired and consideration transferred affects the evaluation of what is considered “substantially all.” That is, an entity may conclude there is a range of fair value measurements for an asset in a set because of inherent estimation uncertainty that exists in fair value measurements. An entity should consider whether different measurements in that range affect whether the “substantially all” threshold is met. The guidance does not require a quantitative evaluation of whether the threshold is met. For example, the assessment could be qualitative if an entity concludes that all of the fair value will be assigned to one element of the set. In contrast, if an entity concludes that there is clearly significant value in assets that are not similar, the entity may be able to qualitatively determine that the threshold is not met. In many acquisitions, an entity may not need additional information to evaluate whether the threshold is met because it would need most of the information required for such an analysis, regardless of whether the acquired set is a business or a group of assets. That is, in an acquisition of a group of assets that does not constitute a business, an entity must determine the fair value of all the assets acquired to allocate consideration transferred to those assets on a relative fair value basis in accordance with  ASC 805-50-30-3. In other situations, such as dispositions, quantitatively evaluating whether the threshold is met may be more challenging because an entity wouldn’t otherwise be required to determine the fair value of all of the assets.,  # Credit Risk Retention, Release No. 34-73407, 12/24/2014
  ## III. General Risk Retention Requirement
     b. Risk Retention Measurement and Disclosures As explained in the revised proposal, to provide greater clarity for the measurement of risk retention and to help prevent sponsors from structuring around their risk retention requirement by negating or reducing the economic exposure they are required to  maintain, the agencies proposed to require sponsors to measure their risk retention requirement using fair valuation methodologies acceptable under GAAP.  <SL_331870098-832986> <SL_331870099-832986>Cf. Financial Accounting Standards Board, Accounting Standards Codification Topic 820 —  Fair Value Measurement. Several commenters supported the proposed requirement that sponsors measure their risk retention requirement using fair value. These commenters expressed the view that the use of fair value would be a more prudent approach than using face value and would  be consistent with market practice. Other commenters, however, expressed general concern with the proposed method by which sponsors would be required to measure their risk retention. One commenter asserted that using fair value instead of face value would require sponsors to hold higher risk retention levels and attract additional investor capital, leading to higher borrowing costs. Two commenters explained that many sponsors who consolidate their issuing entities or keep their securitizations on their balance  sheets do not currently utilize fair value calculations, and that requiring such sponsors to measure their risk retention with fair value would create significant burden and expense. Commenters expressed several specific accounting concerns regarding the use of fair value to measure risk retention. Two commenters asserted that calculation of fair value under GAAP is not designed to provide a definitive value, but a range of values. In  this regard, they expressed concerns about how the requirements could be met if a sponsor calculates multiple possible fair values. One commenter asserted that requiring sponsors to determine fair value in accordance with GAAP would be burdensome for securitization  transactions where the sponsor (or other retaining entity) is established outside the United States, giving rise to additional work and costs. For such transactions, the commenter urged the agencies to allow sponsors to measure fair value using local (non-U.S.)  GAAP or International Financial Reporting Standards (IFRS). One commenter asserted that GAAP does not prescribe use of a single valuation technique, but allows entities to use various techniques, including market, income and cost approaches. The commenter  stated, however, that the reproposal implied that sponsors would be limited to specific valuation techniques and requested that the final rule clarify that sponsors are not so restricted. The commenter also asserted that the reproposal equated intrinsic value  with fair value, which are distinct standards of value. In this regard, the commenter stated that reference to intrinsic value should either be excluded from the final rule or the agencies should clarify that intrinsic and fair value are two separate concepts. The agencies invited comment in the reproposal on whether accountants would be asked to perform agreed upon procedures reports related to measurement of the fair value of sponsors' retained ABS interests. One commenter responded that such requests would  be unlikely and requested that the agencies not mandate agreed upon procedures in the final rule. One commenter stated that sponsors should be permitted to measure their risk retention requirement by using either fair value or securitization value (the value specified in the operative documents for the securitization transaction, subject to certain limitations)  methodology. The commenter stated that securitization value is familiar to sponsors and investors, and permitting its use would accommodate a range of current industry practices. The commenter also stated that securitization value would be easier to compute  than fair value. One commenter asserted that any required risk retention amount for ABCP conduits should be calculated by reference to the principal balance, and not the fair value, of the ABS interests and asserted that using fair value will be difficult, expensive and  unnecessary, especially given the revolving nature of the asset pool. Commenters also requested clarification as to whether, when they are calculating the fair value with respect to revolving pool of assets, they can make static pool assumptions.,  # L2.4 Lessee accounting
  ##  L2.4.2 Operating leases
   ###  L2.4.2.5 Impairment of right-of-use assets in operating leases (updated September 2021)
    ####  L2.4.2.5.2 Measure an impairment (Step 3)
      Fair value considerations  ASC 820 provides a principles-based framework for measuring fair value when US GAAP requires or permits a fair value measurement and requires disclosures about the use of fair value measurements. ASC 820 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under  ASC 820, a fair value measurement of a nonfinancial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Therefore, fair value is a market-based measurement and not an entity-specific measurement. It is determined based on assumptions that market participants would use in pricing the asset or liability. The exit price objective of a fair value measurement applies regardless of the reporting entity’s intent and/or ability to sell the asset or transfer the liability at the measurement date. When determining the fair value of a right-of-use asset, a lessee should consider what market participants would pay to lease the asset (i.e., what a market participant would pay for the right-of-use asset) for its highest and best use, even if that use differs from the current or intended use by the reporting entity. For example, a lessee that currently leases space for use as a grocery store may conclude that the highest and best use of the space by market participants would be to use it as a fitness center. While the concept of highest and best use of an asset may consider its use in a different condition, the objective of a fair value measurement is to determine the price of the asset in its current form. Therefore, if no market exists for an asset in its current form, but there is a market for the transformed asset, the reporting entity should back out the costs to transform the asset (as well as any associated profit margin) to determine the fair value of the asset in its current condition. That is, a fair value measurement should consider the costs market participants would incur to recondition the asset (after acquiring the asset in its current condition) and the compensation they would expect for this effort. A contract restriction, which does not allow the lessee to sublease the asset, does not result in a fair value of zero. Instead, a lessee must consider how a market participant would value the right to use the asset with a sublease restriction in a hypothetical sale. Refer to  section F1.3 5.2.1,  Restrictions on assets  (before the adoption of ASU 2022-03) or  section F1.3 5.2.1A , Restrictions on assets (after the adoption of ASU 2022-03), of our FRD,  Fair value measurement, for further discussion on the effect on fair value of a restriction on the use of an asset.  Refer to our FRD,   Impairment or disposal of long-lived assets, for further discussion of evaluating assets for impairment in accordance with  ASC 360-10 and our FRD,   Fair value measurement, for further discussion on measuring fair value. Refer to  section L2.6.3,  Sublessor accounting, for discussion of evaluating right-of-use assets for impairment when a lessee enters into a sublease.,  # ASC 606 Revenue from contracts with customers
  ## Highlights of US GAAP and other references
   ASC 606 provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers (unless the contracts are in the scope of other US GAAP requirements, such as those for leases). The standard outlines the principles an entity must apply to measure and recognize revenue and the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.  The principles in the standard are applied using the following five steps:   Identify the contract(s) with a customer  Identify the performance obligations in the contract  Determine the transaction price  Allocate the transaction price to the performance obligations in the contract  Recognize revenue when (or as) the entity satisfies a performance obligation  ASC 606 also requires a comprehensive and coherent set of revenue recognition disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.,  # R6.2 Scope
  ##  R6.2.7 Contracts partially in the scope of other guidance
   The following example illustrates how an entity evaluates a transaction that includes the transfer of a nonfinancial asset and a financial asset that is partially in the scope of  ASC 610-20 and partially in the scope of  ASC 860:         Illustration 2-11: Contract to transfer nonfinancial and financial assets partially in the scope of ASC 610-20   Entity A enters into a contract to sell machinery (a nonfinancial asset) with a fair value of $3 million and a financial asset with a fair value of $1 million to Entity B. The group of assets is not a business, and Entity B is not Entity A’s customer in this transaction because the assets are not outputs of Entity A’s ordinary activities.    Analysis Entity A concludes that substantially all of the fair value of the assets promised in the contract is not concentrated in nonfinancial assets (approximately 75% 1 of the value of the assets is concentrated in nonfinancial assets). Therefore, the financial asset in the contract is not an ISNFA. Entity A concludes that the machinery should be accounted for under  ASC 610-20, and the financial asset should be accounted for under other US GAAP (e.g.,  ASC 860). Entity A applies the guidance in  ASC 606-10-15-4 2 to determine how to separate and initially measure the consideration received for the machinery and the financial asset. Note: This analysis doesn’t illustrate how to measure and allocate the transaction price to the separate assets under  ASC 606-10-15-4. ______________________________   1 Calculated as $3 million of nonfinancial assets divided by $4 million of total assets.   2 See  ASC 610-20-15-9. The following example illustrates a transaction that includes the transfer of a nonfinancial asset and services that is partially in the scope of  ASC 610-20 and partially in the scope of  ASC 606:,  # US A&A News - 23 March 2023
  ## Standard setter updates
  ### FASB
  #### FASB proposes fair value accounting and enhanced disclosures for certain crypto assets
  The FASB  proposed requiring entities to measure certain crypto assets at fair value each reporting period and reflect changes in fair value in net income. Entities would have to present crypto assets measured at fair value separately from other intangible assets on the balance sheet and changes in fair value of crypto assets separately from changes in the carrying amounts of other intangible assets in the income statement. They would also be required to provide interim and annual disclosures about the type of crypto assets they hold and any changes in their holdings of crypto assets. Comments are due 6 June 2023. See our upcoming To the Point.  #### 2023 US GAAP financial reporting and SEC reporting taxonomies available for use
  The 2023 US GAAP financial reporting taxonomy (GRT) and the 2023 SEC reporting taxonomy (SRT) for XBRL reporting have been accepted by the SEC and released for public use. The 2023 GRT contains updates for amendments from accounting standards and other improvements since last year. The 2023 SRT updates primarily relate to improvements for SEC Staff Accounting Bulletin No. 121 on obligations to safeguard crypto assets that an entity holds for platform users. The SEC staff strongly encourages companies to use the most recent version of the respective taxonomy for their submissions to take advantage of the most up-to-date tags. For more details, see the  FASB's Media Advisory.  #### Upcoming meetings
   29 March 2023 FASB meeting The FASB will discuss its projects on (1) Conceptual framework: the reporting entity, (2) Disaggregation: income statement expenses and (3) Financial instruments: credit losses (Topic 326) – acquired financial assets. For more information, see the  FASB’s calendar.,  # I2.1.1 General provisions
  ##  I2.1.1.1 Scope (updated July 2021)
   ###  I2.1.1.1.1 A holder’s accounting for cryptocurrencies
    The proliferation of cryptocurrencies and the lack of US GAAP guidance that specifically addresses cryptocurrencies have raised questions about how holders of these assets should account for them. In this context, we use the term cryptocurrency to refer to digital assets that serve purely as a medium of exchange (e.g., Bitcoin). We generally believe that cryptocurrencies meet the definition of indefinite-lived intangible assets under  ASC 350, and holders should account for them at historical cost less impairment. However, entities that are subject to specialized industry guidance may account for cryptocurrencies differently. For example, investment companies as defined under  ASC 946 account for their cryptocurrency investments as “other investments” and subsequently measure these assets at fair value through earnings. We recognize that cryptocurrencies have some characteristics that are not typical of intangible assets. For example, unlike typical intangible assets, they may be traded on exchanges, and they must be exchanged for an entity to realize their value (i.e., they have little or no intrinsic value). Also, unlike other intangible assets, units of a particular cryptocurrency are fungible. Some stakeholders have raised concerns about the application of the intangible asset guidance in  ASC 350 to cryptocurrencies, saying it does not provide relevant information to financial statement users because it does not appropriately reflect the economics associated with cryptocurrencies. However, in the absence of standard setting that specifically addresses the accounting for cryptocurrencies, entities that invest in cryptocurrencies must apply existing accounting standards. The following table provides our analysis of why cryptocurrencies meet the definition of intangible assets rather than other types of assets:
sentences: I am using pretax income as the basis for planning materiality for a non-PIE entity, what is the precentage range that I can apply?, What is the need for extending other substative procedures, eventhough we have perfromed primary substaive procedures, What standard outlines how to measure fair value under US GAAP?, source_sentence:  # ESTIMATES: Accounting estimates
  ##  7 Obtain an understanding of the estimation SCOTs
    Obtaining an understanding of the estimation SCOTs for lower risk estimates is generally less extensive and time-consuming as lower risk estimates may not require significant judgments and the estimation SCOT is likely to be less complex. When our audit strategy for an accounting estimate is a substantive only approach, we may obtain our understanding of the process used to develop the estimate as we perform our substantive procedures over the estimate. In other situations, when an estimation process is more formal, more extensively supported by IT applications, and carried out throughout the audit period, such as for more complex estimates in the financial services industry, we may perform these procedures earlier in the audit and separate to our substantive procedures. We may also perform our procedures to identify and understand controls that respond to significant risks at the same time as our substantive procedures (refer to  ESTIMATES 10.1). However, we consider whether these controls are likely to be application and ITDM controls for which we will need to understand and evaluate ITGCs relevant to these controls (i.e., those that meet the criteria in  SCOTS 6.1). In these situations, we may perform these procedures earlier in the audit and separate to our substantive procedures. We recognize that the identification and assessment of risks of material misstatement is an iterative process. Therefore, as we obtain an understanding of the process, we may identify further risks of material misstatement (i.e., what can go wrongs) that require additional audit responses (e.g., further tests of controls and/or substantive procedures). In some situations, our understanding of the process may result in a reassessment of our preliminary assessment of inherent risk as required in  ESTIMATES 4 and therefore our categorization of the estimate as higher or lower risk. When understanding the estimation SCOT, we consider whether there are policies that we would expect to be in place at the entity but are absent, or that are not designed to allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis (i.e., the policies established by management may not result in the reporting of transactions in the financial statements in accordance with the applicable financial reporting framework). A lack of appropriate policies may be an indicator of a control deficiency, and we consider whether a risk of material misstatement (i.e., WCGW) exists. Based on our understanding of the critical path of all SCOTs, including our understanding of estimation SCOTs, the significant disclosure processes and the FSCP sub-processes, we evaluate whether together they appropriately support the preparation of the entity’s financial statements in accordance with the applicable financial reporting framework. We also determine whether we have identified one or more control deficiencies. Refer to  FSCP 6.,  # SCOTS: Significant classes of transactions [effective for audits of periods ending before 15 December 2022]
  ##  7 Confirm our understanding of routine and non-routine SCOTs
   We confirm our understanding of routine and non-routine SCOTS to:   Confirm the SCOT is correctly documented  Test whether our documentation reflects what actually occurs  Assess whether we have identified relevant WCGWs For estimation SCOTs, refer to  ESTIMATES 11. We confirm our understanding and documentation of a SCOT through walkthrough procedures, which include a combination of inquiry, observation, inspection, and tracing a transaction through the critical path of the SCOT (i.e., through initiation, recording, processing and reporting). ,  # ESTIMATES: Accounting estimates
  ##  6 Identify estimation SCOTs
  <REQUIREMENT> We identify a separate estimation SCOT for each accounting estimate that is susceptible to material misstatement. When an accounting estimate is a significant disclosure, we identify a significant disclosure process.  ISA 540.13, AICPA AU-C 540.12</REQUIREMENT>  We recognize that estimation processes are often less formal and are performed at or near the period end. Estimation processes generally do not follow a flow of transactions but contain a series of actions management follows to determine the estimate.   When an estimate in a significant account has related disclosures, we either include the process to develop the related disclosures in the estimation SCOT or we identify a separate significant disclosure process for the related disclosures., # ESTIMATES: Accounting estimates
  ##  11 Confirm our understanding of the estimation SCOTs
<not_applicable_for_pcaob>  Controls reliance strategy We determine whether our understanding of the estimation SCOT is appropriate based on our substantive procedures. <REQUIREMENT> When we take a controls reliance strategy, we confirm our understanding of, and evaluate, the design of the relevant controls in estimation SCOTs every audit period.  ISA 315.26, AICPA AU-C 315.26-30</REQUIREMENT> Estimation SCOTs typically do not contain transaction flows but consist of a series of actions within a process to determine the estimates. Therefore, instead of tracing one transaction along the critical path, we confirm our understanding of the design of the relevant controls in the estimation SCOT by:    Inquiring of the process owners about the series of actions within the process to determine whether our understanding and documentation of relevant controls is accurate  Observing whether those who make and review estimates are performing functions and using inputs as we understand they do  Inspecting documents supporting the controls used in the significant estimates  Observing whether the process owners, or others, act upon deviations from expectations As we confirm our understanding of the design of the relevant controls in the estimation SCOT, we consider how management determined whether:   Assumptions are appropriate (i.e., based on reasonable interpretations of present circumstances and the best available information)  Assumptions are consistent with those used in prior estimates or whether changes were needed because of changes in the environment or circumstances  Assumptions used are internally consistent with other assumptions used in the accounting estimate, other accounting estimates and with other aspects of the financial statements  Alternative assumptions may have been more appropriate  The external data used in making an estimate is relevant and reliable  The internal data used is relevant, complete and accurate  The IT applications are producing complete and accurate data through our understanding of the IT processes that support the IT applications. The method/model used to make the estimate is appropriate, and if it has been applied correctly Inquiry alone is not sufficient to confirm our understanding of, and evaluate, the design of the relevant controls. We review supporting documentation to confirm the results of the inquiries.  It may be appropriate to confirm our understanding of, and evaluate, the design of the relevant controls in conjunction with our testing of the operating effectiveness of the controls.  Substantive only strategy When we take a substantive only strategy for an estimation SCOT, we determine whether our understanding of the estimation SCOT is appropriate based on our substantive procedures. We may perform our procedures to identify and evaluate controls that address significant risks and the WCGWs over the preparation and posting (i.e., initiation, authorization and recording) of journal entries at the same time as our substantive procedures (refer to  ESTIMATES 10.1). However, as described in  ESTIMATES 7, we consider the following when determining whether our understanding of the estimation SCOT may need to occur earlier in the audit:</not_applicable_for_pcaob>
, # STRATEGY: Audit strategy and CRA [effective for audits of periods ending before 15 December 2022]
  ##  4 Design an audit strategy to respond to risks of material misstatement at the assertion level
   ###  4.3 Substantive only strategy
  When we are not required to or we decide not to take a controls reliance strategy, we consider whether substantive procedures alone will provide sufficient appropriate audit evidence to address the identified risks of material misstatement for each relevant assertion of a significant account. If we do not believe sufficient information is available to design and execute substantive procedures that will reduce detection risk to an acceptably low level without mitigation from controls, we take a controls reliance strategy and follow the guidance in  STRATEGY 4.2. <REQUIREMENT> When we determine not to place reliance on controls relevant to the audit for a SCOT, we use the substantive only strategy.  ISA 315.20, AICPA AU-C 315.21</REQUIREMENT> When we use the substantive only strategy, we set control risk to “not rely on controls”. With a substantive only strategy, we obtain a sufficient understanding of the SCOT and supporting IT applications, from initiation to reporting, to determine the WCGWs to help design effective substantive procedures. Although we may believe a substantive only strategy is appropriate, we consider our approach for testing IPE and any risks introduced to the SCOT by IT processes. When we are relying on financial or non-financial data points that we cannot validate from substantive procedures alone, we follow the guidance in  IPE 4.5.3.  When we assess control risk as “not rely on controls” for an assertion, we obtain audit evidence  only from substantive procedures.   When we reach the conclusion to assess control risk as “not rely on controls” for an assertion, we combine our control risk assessment with our inherent risk assessment to arrive at a combined risk assessment of either moderate or high, as further described in  STRATEGY 5. We then consider the nature, timing, and extent of substantive evidence necessary to persuade us that there is no material misstatement. As we design our substantive procedures, we acknowledge that the nature and extent of substantive evidence is increased as detection risk becomes our only means to address the inherent risk at the assertion level.  ###  4.4 SCOTs with special circumstances
  The design of our audit strategy considers the relationship between control risk and detection risk; however, we also consider if the related SCOT includes any special circumstances that need to be addressed. We take additional action as part of understanding the SCOTs for:   SCOTs for which substantive procedures alone may not be sufficient ( SCOTS 5.1)  Related party relationships and transactions ( SCOTS 5.2)   Estimation SCOTs ( ESTIMATES 7)  Significant risks ( SCOTS 5.4)  Journal entries, including those that post transactions from the sub-ledger to the general ledger ( SCOTS 5.5)
, # STRATEGY: Risk assessment procedures, audit strategy and CRA [effective for audits of periods ending on or after 15 December 2022]
  ##  6 Design an audit strategy to respond to risks of material misstatement at the assertion level
   ###  6.4 SCOTs with special circumstances
  The design of our audit strategy considers the relationship between control risk and detection risk; however, we also consider if the related SCOT includes any special circumstances that need to be addressed. We take additional action as part of understanding the SCOTs for:    SCOTs for which substantive procedures alone may not be sufficient ( SCOTS 5.1)   Related party relationships and transactions ( SCOTS 5.2)    Estimation SCOTs ( ESTIMATES 7)   Significant risks ( SCOTS 5.3)   Journal entries, including non-standard journal entries used to record non-recurring, unusual transactions or adjustments ( SCOTS 5.4)

,  # IT and automated techniques FAQs
  ## AT-06 [10-21]: What is the effect of testing ITGCs and finding them ineffective when using automated techniques?
  As stated in  FAQ AT-05, the hxPSPs support a substantive only strategy for the significant accounts and related SCOTs with a moderate CRA, and we do not rely on controls over the SCOT or the IT processes.  When we determine that ITGCs are ineffective and the IT processes do not support the continuous operation of IT application controls or the production of complete and accurate IPE, we consider the effect on our audit strategy when using automated techniques.  IT 9 details alternative procedures that may be performed when ineffective ITGCs are identified. We add the appropriate risks related to the use of IT (i.e., WCGWs) to our understanding of the SCOT and design our audit procedures to address the risks accordingly. The risks related to a manage change process are likely to be covered by the use of the hxPSPs for the significant accounts addressed by the HxPSPs because the hxPSPs are designed to detect risks of material misstatement which includes when inappropriate modifications to IT applications have a material effect on the financial statements.  With respect to a manage access process, we understand the types of misstatements that could occur and whether our hxPSPs appropriately respond to these risks. For example, we could identify all entries recorded by the generic users and determine whether transactions recorded by such users are appropriate.  However, we recognize that a manage access process that does not trace actions performed by users who have extended rights may present higher risks that may not be detected by our hxPSPs. In such situations, we design appropriate procedures to address any remaining risk, which may include performing hxPSPs to a higher level of sensitivity, performing additional procedures using automated techniques or performing more traditional audit procedures.  We also consider the effect of the ineffective ITGCs or ineffective IT processes on that portion of our audit procedures that are not executed using automated techniques, including on those significant accounts, related SCOTs and IPE, where we do not apply the hxPSP audit programs (refer to  IT 9).,  # Risk assessment using automated techniques - Tool-specific guidance [AMER]
  ## A.4. Understand the SCOTs
     Guidance: Obtain an understanding of SCOTs using automated techniques by understanding:   Sources of transactions and related double-entry accounting for routine and non-routine SCOTs (Procedure  A.4a)  Who is involved in the process – for routine SCOTs (Procedure  A.4b)  Profile of credit and debit activity over time – for routine SCOTs impacting the income statement (Procedure  A.4c) To understand the SCOTs, we use a combination of automated techniques, inquiry, observation and inspection to obtain information to identify WCGWs. As we obtain our understanding of SCOTs, we identify the points where information is, or ought to be, captured, transferred, or modified including how IT affects the SCOT, and consider what can go wrong. We do not attempt to identify everything that could go wrong within the process, but focus where:   There is a likelihood of occurrence of misstatement  The potential misstatement can result in a material misstatement to the significant account, either individually or when aggregated with other potential misstatements  We perform the procedures in steps  A.4a-A.4c, as described below, for the following SCOTs, at a minimum:   Affected by a significant risk, including fraud risk  Related to hxPSPs being performed  Accounts where the disaggregation factor is being used (Digital GAM  SUBSTANTIVE SAP 4)  Related to specific risks of management override ( FRAUD RESPOND 6)  For non-PCAOB audits: We have identified controls as lower risk controls ( Digital GAM CONTROLS 4.1) We perform these procedures for other SCOTs when they help understand unusual items or changes to processes identified during other procedures All of the procedures outlined in steps  A.4a-A.4c below are performed for each significant account impacted by a routine SCOT in scope based on the above guidance. Our automated techniques typically give us greater insight into routine SCOTs than they do into non-routine or estimation SCOTs due to the level of automation within the entity’s accounting process and the way transactions are recorded, processed and reported. Therefore, our procedures and documentation to understand the SCOTs depend on the nature of the significant account and related SCOTs:  Significant accounts impacted by routine SCOTs: Perform  A.4a through A.4c.  Significant accounts not impacted by routine SCOTs: Perform procedure  A.4a; further procedures are recommended but not required.   Section B: Perform the procedures listed. We do not need to retain the analyses used in our workpapers when our understanding is documented narratively – refer to  DOCUMENTATION. ,  # ICFR FAQs [PCAOB-IA only]
  ## Understanding the significant classes of transactions (SCOTs) and performing walkthroughs
  ### IC-01 [03-16]: Is performing a walkthrough sufficient to document our understanding of the SCOT?
  No. Thoroughly understanding the flow of transactions for the SCOTs to identify the risks of material misstatement for the accounts and assertions affected by these SCOTs (i.e., what can go wrongs (WCGWs)) is required by our professional standards and is fundamental to an effective audit of the financial statements and ICFR. We generally document our understanding of the SCOT separately from the walkthrough template in a narrative or a flow chart (or in combination). Our walkthrough is then used to confirm our understanding of the SCOT by selecting a transaction to walk through the various critical paths in the process (e.g., if different types of revenue transactions are processed differently, our understanding of the revenue SCOT would identify these different processes and our walkthroughs would include a walkthrough of each of the different types of revenue transactions in order to confirm our understanding). For estimation processes, the walkthrough may be documented differently as there may not be an individual transaction to walk through; however, we still perform procedures to confirm our understanding of the flow of the estimation process from initiation to reporting in the general ledger. Refer to  SCOTS 2,  SCOTS 7 and  CONTROLS 3 for additional guidance.  ### IC-02 [03-16]: Why does EY GAM require us to obtain an understanding of the SCOT and identify the WCGWs?
  Understanding the flow of transactions and risks of material misstatement is a fundamental requirement of PCAOB Auditing Standard 2201,  An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements, (AS 2201) (f/k/a AS No. 5) and is critical to identifying all relevant risks of material misstatement in the flow of transactions and those controls that, individually or in combination, mitigate the risks within the SCOT. If we fail to focus on all important aspects of the flow of transactions or the WCGWs are generic or not aligned with the risks in the process, we may fail to identify whether a relevant control exists and thus our evaluation of the effectiveness of the design of the entity’s controls may not be appropriate (i.e., we may fail to determine that identified controls do not mitigate the risks). Further, if we do not understand how the SCOT operates and the WCGWs, we may not identify and test the appropriate controls or we may not design effective tests of those controls. Refer to  SCOTS 2,  SCOTS 3, and  SCOTS 4 for additional guidance.,  # EY Private FAQs [US]
  ## SCOTS
   ### How is the Probing Inquiries approach different than the top sheet approach for a non-PIE audit? [29 July 2021]
  The  top sheet approach allows us to carryforward our prior period documentation for a recurring audit after we have obtained a current period transaction to confirm whether there have been any changes in the critical path from the prior period. The Probing Inquiries approach uses inquiries to confirm our understanding of the critical path for each routine and non-routine SCOT every period and to identify whether isolated or significant changes have occurred from the prior period based on the results of our inquiries.  For non-PIEs, when we identify no changes in the critical path of the SCOT from the prior period, we document the results of our probing inquiries in the Form 280-Post  SCOTs form and carry forward our prior-period documentation of the critical path (i.e., the tracing of a transaction), including the related prior-period walkthrough procedures evidence to satisfy the requirement of confirming our understanding of the SCOT. When using probing inquiries and have identified no change, we are not required to select and obtain evidence for a current period transaction unless we have already carried forward our transaction for two audit periods. The carry forward period of the ticked and tied transaction is the same under both approaches.  When, as a result of our probing inquiries, we identify changes in the critical path of the SCOT, we revise our process documentation, as necessary, including what can go wrongs (WCGWs) and, when applicable, the identified relevant controls. We evaluate the nature and extent of changes (i.e., isolated or pervasive) and perform procedures to update our understanding. When pervasive changes in a SCOT are identified, our procedures include tracing a transaction through the critical path. Refer to  SCOTS 7.2 for additional guidance. The use of probing inquiries does not change the requirements for procedures we perform to evaluate the design and determine the implementation of controls, including the requirements in  SCOTS 5 for special circumstances. We do not use probing inquiries to replace our tracing of a transaction through the critical path when we are performing an initial audit, or when we identify a new or non-recurring SCOT on a recurring audit. Refer to “What are the requirements for completing the Probing Inquiries approach?“ above for further details.  ### Are there any guidelines to how many periods in a row we can carry forward evidence for a non-PIE audit? [29 July 2021]
  At a minimum, we update our documentation that supports tracing a transaction along its critical path every three audit periods (i.e., we may carry forward prior period evidence for two audit periods after obtaining the original transaction documentation in period 1) which is consistent with the top sheet approach.  In the year of adoption, if we have already carried forward a walkthrough for two periods under the top sheet approach, we will need to select a current period transaction and complete a walkthrough of the critical path using Form 280-Post  SCOTs form (Canvas form).  This form retains content from prior period upon EY Canvas rollforward allowing for easy updating.
sentences: How many samples do I need to select for a quarterly control?, What should I do if my population does not contain similar items, what are the additional procedures we do we a particular SCOT includes significant estimates
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Created: 2024-11-08 12:40:01