Document ID: chunk:federal_register_of_legislation:F2017C00907:reg:15:p8
Version: federal_register_of_legislation:F2017C00907
Segment Type: reg
Provision Reference: reg 15 (pt 8/12)
Character Range: 29373–32597

professional judgement.  Examples where such misstatements may be material include:

           * Inaccurate or incomplete descriptions of information about the objectives, policies and processes for managing capital for entities with insurance and banking activities.

           * The omission of information about the events or circumstances that have led to an impairment loss (e.g., a significant long‑term decline in the demand for a metal or commodity) in an entity with mining operations.

           * The incorrect description of an accounting policy relating to a significant item in the statement of financial position, the statement of comprehensive income, the statement of changes in equity or the statement of cash flows.

           * The inadequate description of the sensitivity of an exchange rate in an entity that undertakes International trading activities.

A18.         In determining whether uncorrected misstatements by nature are material as required by paragraph 11 of this Auditing Standard, the auditor considers uncorrected misstatements in amounts and disclosures.  Such misstatements may be considered material either individually, or when taken in combination with other misstatements.  For example, depending on the misstatements identified in disclosures, the auditor may consider whether:

         (a)                Identified errors are persistent or pervasive; or

         (b)                A number of identified misstatements are relevant to the same matter, and considered collectively may affect the users' understanding of that matter.

    This consideration of accumulated misstatements is also helpful when evaluating the financial report in accordance with paragraph 13(d) of ASA 700, which requires the auditor to consider whether the overall presentation of the financial report has been undermined by including information that is not relevant or that obscures a proper understanding of the matters disclosed.[13]

A19.         If an individual misstatement is judged to be material, it is unlikely that it can be offset by other misstatements.  For example, if revenue has been materially overstated, the financial report as a whole will be materially misstated, even if the effect of the misstatement on earnings is completely offset by an equivalent overstatement of expenses.  It may be appropriate to offset misstatements within the same account balance or class of transactions; however, the risk that further undetected misstatements may exist is considered before concluding that offsetting even immaterial misstatements is appropriate.[14]

A20.         Determining whether a classification misstatement is material involves the evaluation of qualitative considerations, such as the effect of the classification misstatement on debt or other contractual covenants, the effect on individual line items or sub‑totals, or the effect on key ratios.  There may be circumstances where the auditor concludes that a classification misstatement is not material in the context of the financial report as a whole, even though it may exceed the materiality level or levels applied in evaluating other misstatements.  For example, a misclassification between balance sheet