Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p60
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 175513–178568

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.

Risks of Material Misstatement at the Financial Report Level (Ref: Para. 28(a) and 30)

Why the Auditor Identifies and Assesses Risks of Material Misstatement at the Financial Report Level

A193.      The auditor identifies risks of material misstatement at the financial report level to determine whether the risks have a pervasive effect on the financial report, and would therefore require an overall response in accordance with ASA 330.[50]

A194.      In addition, risks of material misstatement at the financial report level may also affect individual assertions, and identifying these risks may assist the auditor in assessing risks of material misstatement at the assertion level, and in designing further audit procedures to address the identified risks.

Identifying and Assessing Risks of Material Misstatement at the Financial Report Level

A195.      Risks of material misstatement at the financial report level refer to risks that relate pervasively to the financial report as a whole, and potentially affect many assertions.  Risks of this nature are not necessarily risks identifiable with specific assertions at the class of transactions, account balance or disclosure level (e.g., risk of management override of controls).  Rather, they represent circumstances that may pervasively increase the risks of material misstatement at the assertion level.  The auditor's evaluation of whether risks identified relate pervasively to the financial report supports the auditor's assessment of the risks of material misstatement at the financial report level.  In other cases, a number of assertions may also be identified as susceptible to the risk, and may therefore affect the auditor's risk identification and assessment of risks of material misstatement at the assertion level.
Example:

The entity faces operating losses and liquidity issues and is reliant on funding that has not yet been secured.  In such a circumstance, the auditor may determine that the going concern basis of accounting gives rise to a risk of material misstatement at the financial report level.  In this situation, the accounting framework may need to be applied using a liquidation basis, which would likely affect all assertions pervasively.

A196.      The auditor's identification and assessment of risks of material misstatement at the financial report level is influenced by the auditor's understanding of the entity's system of internal control, in particular the auditor's understanding of the control environment, the entity's risk assessment process and the entity's process to monitor the system of internal control, and:

           * The outcome of the related evaluations required by paragraphs 21(b), 22(b), 24(c) and 25(c); and

           * Any control deficiencies identified in accordance with paragraph 27.

In particular, risks at the financial report level may arise