Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p38
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 38/47)
Character Range: 117662–120876

The nature of a change in accounting policy, and other relevant disclosures required by the applicable financial reporting framework, where, for example, new financial reporting requirements are expected to have a significant impact on the financial position and financial performance of the entity.

           * Share‑based payment arrangements, including information about how any amounts recognised were determined, and other relevant disclosures.

           * Related parties, and related party transactions.

           * Sensitivity analysis, including the effects of changes in assumptions used in the entity's valuation techniques intended to enable users to understand the underlying measurement uncertainty of a recorded or disclosed amount.

Considerations specific to smaller entities

A135.      Disclosures in the financial report of smaller entities may be less detailed or less complex (e.g., some financial reporting frameworks allow smaller entities to provide fewer disclosures in the financial report).  However, this does not relieve the auditor of the responsibility to obtain an understanding of the entity and its environment, including internal control, as it relates to disclosures.

Material Misstatements

A136.      Potential misstatements in individual statements and disclosures may be judged to be material due to size, nature or circumstances. (Ref: Para. 26(d))

Relating Controls to Assertions (Ref: Para. 26(c))

A137.      In making risk assessments, the auditor may identify the controls that are likely to prevent, or detect and correct, material misstatement in specific assertions.  Generally, it is useful to obtain an understanding of controls and relate them to assertions in the context of processes and systems in which they exist because individual control activities often do not in themselves address a risk.  Often, only multiple control activities, together with other components of internal control, will be sufficient to address a risk.

A138.      Conversely, some control activities may have a specific effect on an individual assertion embodied in a particular class of transactions or account balance.  For example, the control activities that an entity established to ensure that its personnel are properly counting and recording the annual physical inventory relate directly to the existence and completeness assertions for the inventory account balance.

A139.      Controls can be either directly or indirectly related to an assertion.  The more indirect the relationship, the less effective that control may be in preventing, or detecting and correcting, misstatements in that assertion.  For example, a sales manager's review of a summary of sales activity for specific stores by region ordinarily is only indirectly related to the completeness assertion for sales revenue.  Accordingly, it may be less effective in reducing risk for that assertion than controls more directly related to that assertion, such as matching shipping documents with billing documents.

Significant Risks

Identifying Significant Risks (Ref: Para. 28)

A140.      Significant risks often relate to significant non‑routine transactions or judgemental matters.  Non‑routine