Document ID: chunk:federal_register_of_legislation:F2022C01186:reg:14:p22
Version: federal_register_of_legislation:F2022C01186
Segment Type: reg
Provision Reference: reg 14 (pt 22/30)
Character Range: 74442–77532

diminish over time, and there is a balance to be struck between the reliability of information and its cost.  This is recognised in certain financial reporting frameworks (see, for example, the AASB's Framework for the Preparation and Presentation of Financial Statements).[* ] Therefore, there is an expectation by users of a financial report that the auditor will form an opinion on the financial report within a reasonable period of time and at a reasonable cost, recognising that it is impracticable to address all information that may exist or to pursue every matter exhaustively on the assumption that information is in error or fraudulent until proved otherwise.

A54.         Consequently, it is necessary for the auditor to:

           * Plan the audit so that it will be performed in an effective manner;

           * Direct audit effort to areas most expected to contain risks of material misstatement, whether due to fraud or error, with correspondingly less effort directed at other areas; and

           * Use testing and other means of examining populations for misstatements.

A55.         In light of the approaches described in paragraph A51, the Australian Auditing Standards contain requirements for the planning and performance of the audit and require the auditor, among other things, to:

           * Have a basis for the identification and assessment of risks of material misstatement at the financial report and assertion levels by performing risk assessment procedures and related activities;[25] and

           * Use testing and other means of examining populations in a manner that provides a reasonable basis for the auditor to draw conclusions about the population.[26]

Other Matters that Affect the Inherent Limitations of an Audit

A56.         In the case of certain assertions or subject matters, the potential effects of the inherent limitations on the auditor's ability to detect material misstatements are particularly significant.  Such assertions or subject matters include:

           * Fraud, particularly fraud involving senior management or collusion.  See ASA 240 for further discussion.

           * The existence and completeness of related party relationships and transactions.  See ASA 550[27] for further discussion.

           * The occurrence of non‑compliance with laws and regulations.  See ASA 250[28] for further discussion.

           * Future events or conditions that may cause an entity to cease to continue as a going concern.  See ASA 570[29] for further discussion.

           * Relevant Australian Auditing Standards identify specific audit procedures to assist in mitigating the effect of the inherent limitations.

A57.         Because of the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial report may not be detected, even though the audit is properly planned and performed in accordance with Australian Auditing Standards.  Accordingly, the subsequent discovery of a material misstatement of the financial report resulting from fraud or error does