Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p34
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 34/47)
Character Range: 105944–109024

to the size of the entity and the nature of its operations, and has a direct reporting relationship to those charged with governance.

A118.      If, based on the auditor's preliminary understanding of the internal audit function, the auditor expects to use the work of the internal audit function to modify the nature or timing, or reduce the extent, of audit procedures to be performed, ASA 610 applies.

A119.      As is further discussed in ASA 610, the activities of an internal audit function are distinct from other monitoring controls that may be relevant to financial reporting, such as reviews of management accounting information that are designed to contribute to how the entity prevents or detects misstatements.

A120.      Establishing communications with the appropriate individuals within an entity's internal audit function early in the engagement, and maintaining such communications throughout the engagement, can facilitate effective sharing of information.  It creates an environment in which the auditor can be informed of significant matters that may come to the attention of the internal audit function when such matters may affect the work of the auditor.  ASA 200 discusses the importance of the auditor planning and performing the audit with professional scepticism, including being alert to information that brings into question the reliability of documents and responses to enquiries to be used as audit evidence.  Accordingly, communication with the internal audit function throughout the engagement may provide opportunities for internal auditors to bring such information to the auditor's attention.  The auditor is then able to take such information into account in the auditor's identification and assessment of risks of material misstatement.

Sources of Information (Ref: Para. 24)

A121.      Much of the information used in monitoring may be produced by the entity's information system.  If management assumes that data used for monitoring are accurate without having a basis for that assumption, errors that may exist in the information could potentially lead management to incorrect conclusions from its monitoring activities.  Accordingly, an understanding of:

           * the sources of the information related to the entity's monitoring activities; and

           * the basis upon which management considers the information to be sufficiently reliable for the purpose

    is required as part of the auditor's understanding of the entity's monitoring activities as a component of internal control.

Identifying and Assessing the Risks of Material Misstatement

Assessment of Risks of Material Misstatement at the Financial Report Level (Ref: Para. 25(a))

A122.      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.  Rather, they represent circumstances