Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p74
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 214845–218357

inventories.

               * Key customers and important suppliers of goods and services, employment arrangements (including the existence of union contracts, superannuation and other post- employment benefits, stock option or incentive bonus arrangements, and government regulation related to employment matters).

               * Research and development activities and expenditures.

               * Transactions with related parties.

(f)                 Investments and investment activities such as:

               * Planned or recently executed acquisitions or divestitures.

               * Investments and dispositions of securities and loans.

               * Capital investment activities.

               * Investments in non-consolidated entities, including non-controlled partnerships, joint ventures and non-controlled special-purpose entities.

(g)                Financing and financing activities such as:

               * Ownership structure of major subsidiaries and associated entities, including consolidated and non-consolidated structures.

               * Debt structure and related terms, including off-balance-sheet financing arrangements and leasing arrangements.

               * Beneficial owners (for example, local, foreign, business reputation and experience) and related parties.

               * Use of derivative financial instruments.

Nature of Special-Purpose Entities

6.                   A special-purpose entity (sometimes referred to as a special-purpose vehicle) is an entity that is generally established for a narrow and well-defined purpose, such as to effect a lease or a securitisation of financial assets, or to carry out research and development activities.  It may take the form of a corporation, trust, partnership or unincorporated entity.  The entity on behalf of which the special-purpose entity has been created may often transfer assets to the latter (for example, as part of a derecognition transaction involving financial assets), obtain the right to use the latter's assets, or perform services for the latter, while other parties may provide the funding to the latter.  As ASA 550 indicates, in some circumstances, a special-purpose entity may be a related party of the entity.[70]

7.                   Financial reporting frameworks often specify detailed conditions that are deemed to amount to control, or circumstances under which the special-purpose entity should be considered for consolidation.  The interpretation of the requirements of such frameworks often demands a detailed knowledge of the relevant agreements involving the special-purpose entity.

Appendix 2

(Ref: Para. 12(f), 19(c), A7‒A8, A85‒A89)

Understanding Inherent Risk Factors

This appendix provides further explanation about the inherent risk factors, as well as matters that the auditor may consider in understanding and applying the inherent risk factors in identifying and assessing the risks of material misstatement at the assertion level.

The Inherent Risk Factors

      1. Inherent risk factors are characteristics of events or conditions that affect susceptibility of an assertion about a class of transactions, account balance or disclosure, to misstatement, whether due to fraud or error, and before consideration of controls.  Such factors may be qualitative or quantitative, and include complexity, subjectivity, change, uncertainty or susceptibility to misstatement due to management bias or other fraud risk factors[71] insofar as they affect