Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p19
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 19/63)
Character Range: 66718–69992

control considering the nature and size of the entity; and

           * Control deficiencies identified in the control environment undermine the other components of the system of internal control.

A29.         The auditor may obtain an understanding of whether those charged with governance:

           * Have the skills or knowledge to understand the characteristics of a particular method or model to make accounting estimates, or the risks related to the accounting estimate, for example, risks related to the method or information technology used in making the accounting estimates;

           * Have the skills and knowledge to understand whether management made the accounting estimates in accordance with the applicable financial reporting framework;

           * Are independent from management, have the information required to evaluate on a timely basis how management made the accounting estimates, and the authority to call into question management's actions when those actions appear to be inadequate or inappropriate;

           * Oversee management's process for making the accounting estimates, including the use of models; or

           * Oversee the monitoring activities undertaken by management. This may include supervision and review procedures designed to detect and correct any deficiencies in the design or operating effectiveness of controls over the accounting estimates.

A30.         Obtaining an understanding of the oversight by those charged with governance may be important when there are accounting estimates that:

           * Require significant judgement by management to address subjectivity;

           * Have high estimation uncertainty;

           * Are complex to make, for example, because of the extensive use of information technology, large volumes of data or the use of multiple data sources or assumptions with complex interrelationships;

           * Had, or ought to have had, a change in the method, assumptions or data compared to previous periods; or

           * Involve significant assumptions.

Management's application of specialised skills or knowledge, including the use of management's experts (Ref: Para. 13(f))

A31.         The auditor may consider whether the following circumstances increase the likelihood that management needs to engage an expert:[36]

           * The specialised nature of the matter requiring estimation, for example, the accounting estimate may involve measurement of mineral or hydrocarbon reserves in extractive industries or the evaluation of the likely outcome of applying complex contractual terms.

           * The complex nature of the models required to apply the relevant requirements of the applicable financial reporting framework, as may be the case in certain measurements, such as level 3 fair values.[37]

           * The unusual or infrequent nature of the condition, transaction or event requiring an accounting estimate.

The entity's risk assessment process (Ref: Para. 13(g))

A32.         Understanding how the entity's risk assessment process identifies and addresses risks relating to accounting estimates may assist the auditor in considering changes in:

           * The requirements of the applicable financial reporting framework related to the