Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p10
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 10/47)
Character Range: 34971–38211

or financial publications.

           * Making enquiries of the entity's external legal counsel or of valuation experts that the entity has used.

Enquiries of Management, the Internal Audit Function and Others within the Entity (Ref: Para. 6(a))

A6.             Much of the information obtained by the auditor's enquiries is obtained from management and those responsible for financial reporting.  Information may also be obtained by the auditor through enquiries with the internal audit function, if the entity has such a function, and others within the entity.

A7.             The auditor may also obtain information, or a different perspective in identifying risks of material misstatement, through enquiries of others within the entity and other employees with different levels of authority.  For example:

           * Enquiries directed towards those charged with governance may help the auditor understand the environment in which the financial report is prepared.  ASA 260[5] identifies the importance of effective two‑way communication in assisting the auditor to obtain information from those charged with governance in this regard.

           * Enquiries of employees involved in initiating, processing, or recording complex or unusual transactions may help the auditor to evaluate the appropriateness of the selection and application of certain accounting policies.

           * Enquiries directed toward in‑house legal counsel may provide information about such matters as litigation, compliance with laws and regulations, knowledge of fraud or suspected fraud affecting the entity, warranties, post‑sales obligations, arrangements (such as joint ventures) with business partners and the meaning of contract terms.

           * Enquiries directed towards marketing or sales personnel may provide information about changes in the entity's marketing strategies, sales trends, or contractual arrangements with its customers.

           * Enquiries directed to the risk management function (or those performing such roles) may provide information about operational and regulatory risks that may affect financial reporting.

           * Enquiries direct to information systems personnel may provide information about system changes, system or control failures, or other information system‑related risks.

A8.             As obtaining an understanding of the entity and its environment is a continual, dynamic process, the auditor's enquiries may occur throughout the audit engagement.

Enquiries of the Internal Audit Function

A9.             If an entity has an internal audit function, enquiries of the appropriate individuals within the function may provide information that is useful to the auditor in obtaining an understanding of the entity and its environment, and in identifying and assessing risks of material misstatement at the financial statement and assertion levels.  In performing its work, the internal audit function is likely to have obtained insight into the entity's operations and business risks, and may have findings based on its work, such as identified control deficiencies or risks, that may provide valuable input into the auditor's understanding of the entity, the auditor's risk assessments or