Document ID: chunk:federal_register_of_legislation:F2023C01124:reg:17:p23
Version: federal_register_of_legislation:F2023C01124
Segment Type: reg
Provision Reference: reg 17 (pt 23/41)
Character Range: 75435–78716

transactions (such as acquisitions, restructurings, or disposals of a segment of the business), and other significant accrued liabilities (such as pension or superannuation and other post‑employment benefit obligations, or environmental remediation liabilities).  The risk may also relate to significant changes in assumptions relating to recurring estimates.  Information gathered through obtaining an understanding of the entity and its environment may assist the auditor in evaluating the reasonableness of such management estimates and underlying judgements and assumptions.  A retrospective review of similar management judgements and assumptions applied in prior periods may also provide insight about the reasonableness of judgements and assumptions supporting management estimates.

A41.         Examples of possible audit procedures to address the assessed risks of material misstatement due to fraud, including those that illustrate the incorporation of an element of unpredictability, are presented in Appendix 2.  The appendix includes examples of responses to the auditor's assessment of the risks of material misstatement resulting from both fraudulent financial reporting, including fraudulent financial reporting resulting from revenue recognition, and misappropriation of assets.

Audit Procedures Responsive to Risks Related to Management Override of Controls

Journal Entries and Other Adjustments (Ref: Para. 33(a))

A42.         Material misstatement of the financial report due to fraud often involves the manipulation of the financial reporting process by recording inappropriate or unauthorised journal entries.  This may occur throughout the year or at period end, or by management making adjustments to amounts reported in the financial report that are not reflected in journal entries, such as through consolidating adjustments and reclassifications.

A43.         Further, the auditor's consideration of the risks of material misstatement associated with inappropriate override of controls over journal entries[22] is important since automated processes and controls may reduce the risk of inadvertent error but do not overcome the risk that individuals may inappropriately override such automated processes, for example, by changing the amounts being automatically passed to the general ledger or to the financial reporting system.  Furthermore, where IT is used to transfer information automatically, there may be little or no visible evidence of such intervention in the information systems.

A44.         When identifying and selecting journal entries and other adjustments for testing and determining the appropriate method of examining the underlying support for the items selected, the following matters are of relevance:

           * The identification and assessment of the risks of material misstatement due to fraud – the presence of fraud risk factors and other information obtained during the auditor's identification and assessment of the risks of material misstatement due to fraud may assist the auditor to identify specific classes of journal entries and other adjustments for testing.

           * Controls that have been implemented over journal entries and other adjustments – effective controls over the preparation and posting of