Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p14
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 14/47)
Character Range: 46503–49780

* Changes in financial reporting requirements that may result in significant new or revised disclosures;

           * Changes in the entity's environment, financial condition or activities that may result in significant new or revised disclosures, for example, a significant business combination in the period under audit;

           * Disclosures for which obtaining sufficient appropriate audit evidence may have been difficult in the past; and

           * Disclosures about complex matters, including those involving significant management judgement as to what information to disclose.

A23.         It is not always necessary or practical for the discussion to include all members in a single discussion (as, for example, in a multi‑location audit), nor is it necessary for all of the members of the engagement team to be informed of all of the decisions reached in the discussion.  The engagement partner may discuss matters with key members of the engagement team including, if considered appropriate, specialists and those responsible for the audits of components, while delegating discussion with others, taking account of the extent of communication considered necessary throughout the engagement team.  A communications plan, agreed by the engagement partner, may be useful.

Considerations Specific to Smaller Entities

A24.         Many small audits are carried out entirely by the engagement partner (who may be a sole practitioner).  In such situations, it is the engagement partner who, having personally conducted the planning of the audit, would be responsible for considering the susceptibility of the entity's financial report to material misstatement due to fraud or error.

The Required Understanding of the Entity and Its Environment, Including the Entity's Internal Control

The Entity and Its Environment

Industry, Regulatory and Other External Factors (Ref: Para. 11(a))

Industry Factors

A25.         Relevant industry factors include industry conditions such as the competitive environment, supplier and customer relationships, and technological developments.  Examples of matters the auditor may consider include:

           * The market and competition, including demand, capacity, and price competition.

           * Cyclical or seasonal activity.

           * Product technology relating to the entity's products.

           * Energy supply and cost.

A26.         The industry in which the entity operates may give rise to specific risks of material misstatement arising from the nature of the business or the degree of regulation.  For example, long‑term contracts may involve significant estimates of revenues and expenses that give rise to risks of material misstatement.  In such cases, it is important that the engagement team include members with sufficient relevant knowledge and experience, as required by ASA 220.[9]

Regulatory Factors

A27.         Relevant regulatory factors include the regulatory environment.  The regulatory environment encompasses, among other matters, the applicable financial reporting framework and the legal and political environment.  Examples of matters the auditor may consider include:

           * Accounting principles and industry specific practices.

           * Regulatory framework for