Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p15
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 46284–49413

of material misstatement, then it is not a relevant assertion.

Significant Risk (Ref: Para. 12(l))

A10.         Significance can be described as the relative importance of a matter, and is judged by the auditor in the context in which the matter is being considered. For inherent risk, significance may be considered in the context of how, and the degree to which, inherent risk factors affect the combination of the likelihood of a misstatement occurring and the magnitude of the potential misstatement should that misstatement occur.

Risk Assessment Procedures and Related Activities (Ref: Para. 13–18)

A11.         The risks of material misstatement to be identified and assessed include both those due to fraud and those due to error, and both are covered by this ASA.  However, the significance of fraud is such that further requirements and guidance are included in ASA 240 in relation to risk assessment procedures and related activities to obtain information that is used to identify and assess the risks of material misstatement due to fraud.[15] In addition, the following ASAs provide further requirements and guidance on identifying and assessing risks of material misstatement regarding specific matters or circumstances:

           * ASA 540[16] in regard to accounting estimates;

           * ASA 550* in regard to related party relationships and transactions;

           * ASA 570[17] in regard to going concern; and

           * ASA 600[18] in regard to group financial report.

A12.         Professional scepticism is necessary for the critical assessment of audit evidence gathered when performing the risk assessment procedures, and assists the auditor in remaining alert to audit evidence that is not biased towards corroborating the existence of risks or that may be contradictory to the existence of risks. Professional scepticism is an attitude that is applied by the auditor when making professional judgements that then provides the basis for the auditor's actions. The auditor applies professional judgement in determining when the auditor has audit evidence that provides an appropriate basis for risk assessment.

A13.         The application of professional scepticism by the auditor may include:

           * Questioning contradictory information and the reliability of documents;

           * Considering responses to enquiries and other information obtained from management and those charged with governance;

           * Being alert to conditions that may indicate possible misstatement due to fraud or error; and

           * Considering whether audit evidence obtained supports the auditor's identification and assessment of the risks of material misstatement in light of the entity's nature and circumstances.

Why Obtaining Audit Evidence in an Unbiased Manner Is Important (Ref: Para. 13)

A14.         Designing and performing risk assessment procedures to obtain audit evidence to support the identification and assessment of the risks of material misstatement in an unbiased manner may assist the auditor in identifying potentially contradictory information, which may assist