Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p28
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 28/47)
Character Range: 88324–91693

Considerations Specific to Smaller Entities (Ref: Para. 17)

A89.         There is unlikely to be an established risk assessment process in a small entity.  In such cases, it is likely that management will identify risks through direct personal involvement in the business.  Irrespective of the circumstances, however, enquiry about identified risks and how they are addressed by management is still necessary.

Components of Internal Control—The Information System, Including the Related Business Processes, Relevant to Financial Reporting, and Communication

The Information System, Including Related Business Processes, Relevant to Financial Reporting (Ref: Para. 18)

A90.         The information system relevant to financial reporting objectives, which includes the accounting system, consists of the procedures and records designed and established to:

           * Initiate, record, process, and report entity transactions (as well as events and conditions) and to maintain accountability for the related assets, liabilities, and equity;

           * Resolve incorrect processing of transactions, for example, automated suspense files and procedures followed to clear suspense items out on a timely basis;

           * Process and account for system overrides or bypasses to controls;

           * Transfer information from transaction processing systems to the general ledger;

           * Capture information relevant to financial reporting for events and conditions other than transactions, such as the depreciation and amortisation of assets and changes in the recoverability of accounts receivables; and

           * Ensure information required to be disclosed by the applicable financial reporting framework is accumulated, recorded, processed, summarised and appropriately reported in the financial report.

A91.         The financial report may contain information that is obtained from outside of the general and subsidiary ledgers.  Examples of such information may include:

           * Information obtained from lease agreements disclosed in the financial report, such as renewal options or future lease payments.

           * Information disclosed in the financial report that is produced by an entity's risk management system.

           * Fair value information produced by management's experts and disclosed in the financial report.

           * Information disclosed in the financial report that has been obtained from models, or from other calculations used to develop estimates recognised or disclosed in the financial report, including information relating to the underlying data and assumptions used in those models, such as:

                   + Assumptions developed internally that may affect an asset's useful life; or

                   + Data such as interest rates that are affected by factors outside the control of the entity.

           * Information disclosed in the financial report about sensitivity analyses derived from financial models that demonstrates that management has considered alternative assumptions.

           * Information recognised or disclosed in the financial report that has been obtained from an entity's tax returns and records.

           * Information disclosed in the financial report that has been obtained from analyses prepared to support management's assessment of the entity's ability