Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p39
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 39/47)
Character Range: 120557–123853

for that assertion than controls more directly related to that assertion, such as matching shipping documents with billing documents.

Significant Risks

Identifying Significant Risks (Ref: Para. 28)

A140.      Significant risks often relate to significant non‑routine transactions or judgemental matters.  Non‑routine transactions are transactions that are unusual, due to either size or nature, and that therefore occur infrequently.  Judgemental matters may include the development of accounting estimates for which there is significant measurement uncertainty.  Routine, non‑complex transactions that are subject to systematic processing are less likely to give rise to significant risks.

A141.      Risks of material misstatement may be greater for significant non‑routine transactions arising from matters such as the following:

           * Greater management intervention to specify the accounting treatment.

           * Greater manual intervention for data collection and processing.

           * Complex calculations or accounting principles.

           * The nature of non‑routine transactions, which may make it difficult for the entity to implement effective controls over the risks.

A142.      Risks of material misstatement may be greater for significant judgemental matters that require the development of accounting estimates, arising from matters such as the following:

           * Accounting principles for accounting estimates or revenue recognition may be subject to differing interpretation.

           * Required judgement may be subjective or complex, or require assumptions about the effects of future events, for example, judgement about fair value.

A143.      ASA 330 describes the consequences for further audit procedures of identifying a risk as significant.[20]

Significant risks relating to the risks of material misstatement due to fraud

A144.      ASA 240 provides further requirements and guidance in relation to the identification and assessment of the risks of material misstatement due to fraud.[21]

Understanding Controls Related to Significant Risks (Ref: Para. 29)

A145.      Although risks relating to significant non‑routine or judgemental matters are often less likely to be subject to routine controls, management may have other responses intended to deal with such risks.  Accordingly, the auditor's understanding of whether the entity has designed and implemented controls for significant risks arising from non‑routine or judgemental matters includes whether and how management responds to the risks.  Such responses might include:

           * Control activities such as a review of assumptions by senior management or experts.

           * Documented processes for estimations.

           * Approval by those charged with governance.

A146.      For example, where there are one‑off events such as the receipt of notice of a significant lawsuit, consideration of the entity's response may include such matters as whether it has been referred to appropriate experts (such as internal or external legal counsel), whether an assessment has been made of the potential effect, and how it is proposed that the circumstances are to be disclosed in the financial report.

A147.      In some cases, management may not have appropriately