Document ID: chunk:federal_register_of_legislation:F2021C01254:reg:5:p4
Version: federal_register_of_legislation:F2021C01254
Segment Type: reg
Provision Reference: reg 5 (pt 4/11)
Character Range: 14535–17765

date of the request for a letter of enquiry to the entity's legal counsel and prior to signing the auditor's report.
(Ref. Para A9-Aus A9.1)

Aus 7.2 If audit procedures lead to the discovery of matters of a legal nature not previously identified by management, the auditor shall consider the impact of each of the matters on the financial report.  (Ref: Para. Aus A9.2‑Aus A9.3)

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Application and Other Explanatory Material

Completeness of Litigation and Claims (Ref: Para.4)

A1.             Litigation and claims involving the entity may have a material effect on the financial report and thus may be required to be disclosed or accounted for in the financial report.

Aus A1.1 It is the responsibility of those charged with governance of an entity to adopt policies and procedures to identify, evaluate, record and report on the outcome of any material litigation and claims.  However, since the factors that would be considered in the accounting for and reporting of litigation and claims are within the direct knowledge and control of the management of an entity, management is the primary source of information.  Ordinarily, the auditor would seek audit evidence from different sources to corroborate management's assertions.

A2.             In addition to the procedures identified in paragraph 4, other relevant procedures include, for example, using information obtained through risk assessment procedures carried out as part of obtaining an understanding of the entity and its environment to assist the auditor to become aware of litigation and claims involving the entity.

Aus A2.1 The procedures identified in paragraphs 4 and A2 would ordinarily include the following:

                * reviewing and discussing with management the procedures within the entity's internal control structure for identifying and recording litigation and claims and bringing them to the attention of management;

                * reviewing and discussing with management the procedures within the entity's internal control structure for the identification, control and recording of litigation and claims and associated revenues and expenses in appropriate accounts; and

                * obtaining and discussing with management:

                   (i)                      a list of litigation and claims, including a description of the matters and an estimate of their likely financial consequences; and

                   (ii)                    an analysis identifying litigation and claims.

Aus A2.2 Audit procedures that are undertaken for different purposes might also identify litigation and claims.  Such procedures include:

                * examining contracts, loan agreements, leases, insurance policies and claims, and other correspondence;

                * reading minutes of meetings of the audit committee, shareholders and appropriate committees;

                * obtaining information concerning guarantees from bank confirmations; and

                * enquiries of management and other employees of the entity.

A3.             Audit evidence obtained for purposes of identifying litigation and claims that may give rise to a risk of material misstatement also may provide audit evidence