Document ID: chunk:federal_register_of_legislation:F2021C01250:reg:27:p20
Version: federal_register_of_legislation:F2021C01250
Segment Type: reg
Provision Reference: reg 27 (pt 20/23)
Character Range: 63554–66646

to perform substantive procedures that are specifically responsive to risks the auditor has determined to be significant risks.  Audit evidence in the form of external confirmations received directly by the auditor from appropriate confirming parties may assist the auditor in obtaining audit evidence with the high level of reliability that the auditor requires to respond to significant risks of material misstatement, whether due to fraud or error.  For example, if the auditor identifies that management is under pressure to meet earnings expectations, there may be a risk that management is inflating sales by improperly recognising revenue related to sales agreements with terms that preclude revenue recognition or by invoicing sales before shipment.  In these circumstances, the auditor may, for example, design external confirmation procedures not only to confirm outstanding amounts, but also to confirm the details of the sales agreements, including date, any rights of return and delivery terms.  In addition, the auditor may find it effective to supplement such external confirmation procedures with enquiries of non-financial personnel in the entity regarding any changes in sales agreements and delivery terms.

Timing of Substantive Procedures (Ref: Para. 23)

A56.         In most cases, audit evidence from a previous audit's substantive procedures provides little or no audit evidence for the current period.  There are, however, exceptions, for example, a legal opinion obtained in a previous audit related to the structure of a securitisation to which no changes have occurred, may be relevant in the current period.  In such cases, it may be appropriate to use audit evidence from a previous audit's substantive procedures if that evidence and the related subject matter have not fundamentally changed, and audit procedures have been performed during the current period to establish its continuing relevance.

Using audit evidence obtained during an interim period (Ref: Para. 22)

A57.         In some circumstances, the auditor may determine that it is effective to perform substantive  procedures at an interim date, and to compare and reconcile information concerning the balance at the period end with the comparable information at the interim date to:

(a)                Identify amounts that appear unusual,

(b)                Investigate any such amounts, and

(c)                Perform substantive analytical  procedures or tests of details to test the intervening period.

A58.         Performing substantive procedures at an interim date without undertaking additional procedures at a later date increases the risk that the auditor will not detect misstatements that may exist at the period end.  This risk increases as the remaining period is lengthened.  Factors such as the following may influence whether to perform substantive  procedures at an interim date:

           * The control environment and other controls.

           * The availability at a later date of information necessary for the auditor's procedures.

           * The purpose of the