Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p61
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 178287–181350

of internal control, and:

           * The outcome of the related evaluations required by paragraphs 21(b), 22(b), 24(c) and 25(c); and

           * Any control deficiencies identified in accordance with paragraph 27.

In particular, risks at the financial report level may arise from deficiencies in the control environment or from external events or conditions such as declining economic conditions.

A197.      Risks of material misstatement due to fraud may be particularly relevant to the auditor's consideration of the risks of material misstatement at the financial report level.

Example:

The auditor understands from enquiries of management that the entity's financial report is to be used in discussions with lenders in order to secure further financing to maintain working capital.  The auditor may therefore determine that there is a greater susceptibility to misstatement due to fraud risk factors that affect inherent risk (i.e., the susceptibility of the financial report to material misstatement because of the risk of fraudulent financial reporting, such as overstatement of assets and revenue and under-statement of liabilities and expenses to ensure that financing will be obtained).

A198.      The auditor's understanding, including the related evaluations, of the control environment and other components of the system of internal control may raise doubts about the auditor's ability to obtain audit evidence on which to base the audit opinion or be cause for withdrawal from the engagement where withdrawal is possible under applicable law or regulation.
Examples:

      * As a result of evaluating the entity's control environment, the auditor has concerns about the integrity of the entity's management, which may be so serious as to cause the auditor to conclude that the risk of intentional misrepresentation by management in the financial report is such that an audit cannot be conducted.

      * As a result of evaluating the entity's information system and communication, the auditor determines that significant changes in the IT environment have been poorly managed, with little oversight from management and those charged with governance.  The auditor concludes that there are significant concerns about the condition and reliability of the entity's accounting records.  In such circumstances, the auditor may determine that it is unlikely that sufficient appropriate audit evidence will be available to support an unmodified opinion on the financial report.

A199.      ASA 705[51] establishes requirements and provides guidance in determining whether there is a need for the auditor to express a qualified opinion or disclaim an opinion or, as may be required in some cases, to withdraw from the engagement where withdrawal is possible under applicable law or regulation.

Considerations Specific to Public Sector Entities

A200.      For public sector entities, the identification of risks at the financial report level may include consideration of matters related to the political climate, public interest and program