Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p37
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 37/47)
Character Range: 114800–117946

transactions, events, or account balances.  As an example of such a disclosure, the entity may be required to describe its exposure to risks arising from financial instruments, including how the risks arise; the objectives, policies and processes for managing the risks; and the methods used to measure the risks.

Considerations specific to public sector entities

A130.      When making assertions about the financial report of public sector entities, in addition to those assertions set out in paragraph A128, management or those charged with governance may often assert that transactions and events have been carried out in accordance with law, regulation or other authority.  Such assertions may fall within the scope of the financial report audit.

Process of Identifying Risks of Material Misstatement (Ref: Para. 26(a))

A131.      Information gathered by performing risk assessment procedures, including the audit evidence obtained in evaluating the design of controls and determining whether they have been implemented, is used as audit evidence to support the risk assessment.  The risk assessment determines the nature, timing, and extent of further audit procedures to be performed. In identifying the risks of material misstatement in the financial report, the auditor exercises professional scepticism in accordance with ASA 200.[17]

A132.      Appendix 2 provides examples of conditions and events that may indicate the existence of risks of material misstatement, including risks of material misstatement relating to disclosures.

A133.      As explained in ASA 320,[18] materiality and audit risk are considered when identifying and assessing the risks of material misstatement in classes of transactions, account balances and disclosures.  The auditor's determination of materiality is a matter of professional judgement, and is affected by the auditor's perception of the financial reporting needs of users of the financial report.[19]

A134.      The auditor's consideration of disclosures in the financial report when identifying risks includes quantitative and qualitative disclosures, the misstatement of which could be material (i.e., in general, misstatements are considered to be material if they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report as a whole).  Depending on the circumstances of the entity and the engagement, examples of disclosures that will have qualitative aspects and that may be relevant when assessing the risks of material misstatement include disclosures about:

           * Liquidity and debt covenants of an entity in financial distress.

           * Events or circumstances that have led to the recognition of an impairment loss.

           * Key sources of estimation uncertainty, including assumptions about the future.

           * The nature of a change in accounting policy, and other relevant disclosures required by the applicable financial reporting framework, where, for example, new financial reporting requirements are expected to have a significant impact on the financial position and financial performance