Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p76
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 221052–224201

reporting framework, or in the entity and its business model, or in the environment in which the entity operates.  Such change may affect management's assumptions and judgements, including as they relate to management's selection of accounting policies or how accounting estimates are made or related disclosures are determined.

           * Uncertainty―arises when the required information cannot be prepared based only on sufficiently precise and comprehensive data that is verifiable through direct observation.  In these circumstances, an approach may need to be taken that applies the available knowledge to prepare the information using sufficiently precise and comprehensive observable data, to the extent available, and reasonable assumptions supported by the most appropriate available data, when it is not.  Constraints on the availability of knowledge or data, which are not within the control of management (subject to cost constraints where applicable) are sources of uncertainty and their effect on the preparation of the required information cannot be eliminated.  For example, estimation uncertainty arises when the required monetary amount cannot be determined with precision and the outcome of the estimate is not known before the date the financial report are finalised.

           * Susceptibility to misstatement due to management bias or other fraud risk factors insofar as they affect inherent risk ―susceptibility to management bias results from conditions that create susceptibility to intentional or unintentional failure by management to maintain neutrality in preparing the information.  Management bias is often associated with certain conditions that have the potential to give rise to management not maintaining neutrality in exercising judgement (indicators of potential management bias), which could lead to a material misstatement of the information that would be fraudulent if intentional.  Such indicators include incentives or pressures insofar as they affect inherent risk (for example, as a result of motivation to achieve a desired result, such as a desired profit target or capital ratio), and opportunity, not to maintain neutrality.  Factors relevant to the susceptibility to misstatement due to fraud in the form of fraudulent financial reporting or misappropriation of assets are described in paragraphs A1 to A5 of ASA 240.

3.                   When complexity is an inherent risk factor, there may be an inherent need for more complex processes in preparing the information, and such processes may be inherently more difficult to apply.  As a result, applying them may require specialised skills or knowledge, and may require the use of a management's expert.

4.                   When management judgement is more subjective, the susceptibility to misstatement due to management bias, whether unintentional or intentional, may also increase.  For example, significant management judgement may be involved in making accounting estimates that have been identified as having high estimation uncertainty, and conclusions regarding methods, data and assumptions may reflect unintentional or intentional