Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p40
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 40/63)
Character Range: 126762–129917

model, and the related method, is more likely to be complex when:

           * Understanding and applying the method, including designing the model and selecting and using appropriate data and assumptions, requires specialised skills or knowledge;

           * It is difficult to obtain data needed for use in the model because there are restrictions on the availability or observability of, or access to, data; or

           * It is difficult to maintain the integrity (e.g., accuracy, consistency, or completeness) of the data and assumptions in using the model due to multiple valuation attributes, multiple relationships between them, or multiple iterations of the calculation.

A99.         Matters that the auditor may consider when management uses a complex model include, for example, whether:

           * The model is validated prior to usage or when there has been a change to the model, with periodic reviews to ensure it is still suitable for its intended use. The entity's validation process may include evaluation of:

                   + The model's theoretical soundness;

                   + The model's mathematical integrity;

                   + The accuracy and completeness of the model's data and assumptions; and

                   + The model's output as compared to actual transactions.

           * Appropriate change control policies and procedures exist.

           * Management uses appropriate skills and knowledge in using the model.

These considerations may also be useful for a method that does not involve complex modelling.

A100.      Management may make adjustments to the output of the model to meet the requirements of the applicable financial reporting framework. In some industries these adjustments are referred to as overlays. In the case of fair value accounting estimates, it may be relevant to consider whether adjustments to the output of the model, if any, reflect the assumptions marketplace participants would use in similar circumstances.

Maintenance of integrity of significant assumptions and the data used in applying the method (Ref: Para. 23(e))

A101.      Maintaining the integrity of significant assumptions and the data in applying the method refers to the maintenance of the accuracy and completeness of the data and assumptions through all stages of information processing. A failure to maintain such integrity may result in corruption of the data and assumptions and may give rise to misstatements. In this regard, relevant considerations for the auditor may include whether the data and assumptions are subject to all changes intended by management, and not subject to any unintended changes, during activities such as input, storage, retrieval, transmission or processing.

Significant Assumptions (Ref: Para. 24)

A102.      Relevant considerations for the auditor regarding the appropriateness of the significant assumptions in the context of the applicable financial reporting framework, and, if applicable, the appropriateness of changes from the prior period may include:

           * Management's rationale for the selection of the assumption;

           * Whether the