Document ID: chunk:federal_register_of_legislation:F2023C01124:reg:17:p26
Version: federal_register_of_legislation:F2023C01124
Segment Type: reg
Provision Reference: reg 17 (pt 26/41)
Character Range: 84010–87190

into to engage in fraudulent financial reporting or to conceal misappropriation of assets include:

           * The form of such transactions appears overly complex (for example, the transaction involves multiple entities within a consolidated group or multiple unrelated third parties).

           * Management has not discussed the nature of and accounting for such transactions with those charged with governance of the entity, and there is inadequate documentation.

           * Management is placing more emphasis on the need for a particular accounting treatment than on the underlying economics of the transaction.

           * Transactions that involve non‑consolidated related parties, including special purpose entities, have not been properly reviewed or approved by those charged with governance of the entity.

           * The transactions involve previously unidentified related parties or parties that do not have the substance or the financial strength to support the transaction without assistance from the entity under audit.

Evaluation of Audit Evidence (Ref: Para. 35‑38)

A50.         ASA 330 requires the auditor, based on the audit procedures performed and the audit evidence obtained, to evaluate whether the assessments of the risks of material misstatement at the assertion level remain appropriate.[24]  This evaluation is primarily a qualitative matter based on the auditor's judgement.  Such an evaluation may provide further insight about the risks of material misstatement due to fraud and whether there is a need to perform additional or different audit procedures.  Appendix 3 contains examples of circumstances that may indicate the possibility of fraud.

Analytical Procedures Performed Near the End of the Audit in Forming an Overall Conclusion (Ref: Para. 35)

A51.         Determining which particular trends and relationships may indicate a risk of material misstatement due to fraud requires professional judgement.  Unusual relationships involving year‑end revenue and income are particularly relevant.  These might include, for example: uncharacteristically large amounts of income being reported in the last few weeks of the reporting period or unusual transactions; or income that is inconsistent with trends in cash flow from operations.

Consideration of Identified Misstatements (Ref: Para. 36‑38)

A52.         Since fraud involves incentive or pressure to commit fraud, a perceived opportunity to do so or some rationalisation of the act, an instance of fraud is unlikely to be an isolated occurrence.  Accordingly, misstatements, such as numerous misstatements at a specific location even though the cumulative effect is not material, may be indicative of a risk of material misstatement due to fraud.

    A53.         The implications of identified fraud depend on the circumstances.  For example, an otherwise insignificant fraud may be significant if it involves senior management.  In such circumstances, the reliability of evidence previously obtained may be called into question, since there may be doubts about the completeness and truthfulness of representations made and about the genuineness of accounting records