Document ID: chunk:federal_register_of_legislation:F2020L00252:body:0:p12
Version: federal_register_of_legislation:F2020L00252
Segment Type: other
Provision Reference: 
Character Range: 33551–36711

exercised by the appropriate individuals.[18]

46.               Existing paragraph A21 is amended to read as follows:

    An understanding of the oversight exercised by those charged with governance may provide insights regarding the susceptibility of the entity to management fraud, the adequacy of internal controls that address over risks of fraud, and the competency and integrity of management.  The auditor may obtain this understanding in a number of ways, such as by attending meetings where such discussions take place, reading the minutes from such meetings or making enquiries of those charged with governance.

47.               Existing paragraph A23 is amended to read as follows:

    In addition to information obtained from applying analytical procedures, other information obtained about the entity and its environment, the applicable financial reporting framework and the entity's system of internal control may be helpful in identifying the risks of material misstatement due to fraud.  The discussion among team members may provide information that is helpful in identifying such risks.  In addition, information obtained from the auditor's client acceptance and retention processes, and experience gained on other engagements performed for the entity, for example, engagements to review interim financial information, may be relevant in the identification of the risks of material misstatement due to fraud.

48.               Existing paragraph A26 is amended to read as follows:

    Examples of fraud risk factors related to fraudulent financial reporting and misappropriation of assets are presented in Appendix 1.  These illustrative risk factors are classified based on the three conditions that are generally present when fraud exists:

           * An incentive or pressure to commit fraud;

           * A perceived opportunity to commit fraud; and

           * An ability to rationalise the fraudulent action.

    Fraud risk factors may relate to incentives, pressures or opportunities that arise from conditions that create susceptibility to misstatement, before consideration of controls. Fraud risk factors, which include intentional management bias, are, insofar as they affect inherent risk, inherent risk factors.[20] Fraud risk factors may also relate to conditions within the entity's system of internal control that provide opportunity to commit fraud or that may affect management's attitude or ability to rationalise fraudulent actions.  Fraud rRisk factors reflective of an attitude that permits rationalisation of the fraudulent action may not be susceptible to observation by the auditor.  Nevertheless, the auditor may become aware of the existence of such information through, for example, the required understanding of the entity's control environment.[21] Although the fraud risk factors described in Appendix 1 cover a broad range of situations that may be faced by auditors, they are only examples and other risk factors may exist.

49.               Existing footnote 19 in paragraph A32 is amended to read as follows:

See ASA 315, paragraph A48A75.

50.               Existing paragraph A33 is amended