Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p20
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 60707–63961

of transactions, account balances or disclosures for which further specific risk assessment procedures may be warranted.

Observation and Inspection (Ref: Para. 14(c))

Why Observation and Inspection Are Performed as Risk Assessment Procedures

A32.         Observation and inspection may support, corroborate or contradict enquiries of management and others, and may also provide information about the entity and its environment.

Scalability

A33.         Where policies or procedures are not documented, or the entity has less formalised controls, the auditor may still be able to obtain some audit evidence to support the identification and assessment of the risks of material misstatement through observation or inspection of the performance of the control.
Examples:

      * The auditor may obtain an understanding of controls over an inventory count, even if they have not been documented by the entity, through direct observation.

      * The auditor may be able to observe segregation of duties.

      * The auditor may be able to observe passwords being entered.

Observation and Inspection as Risk Assessment Procedures

A34.         Risk assessment procedures may include observation or inspection of the following:

           * The entity's operations.

           * Internal documents (such as business plans and strategies), records, and internal control manuals.

           * Reports prepared by management (such as quarterly management reports and interim financial reports) and those charged with governance (such as minutes of board of directors' meetings).

           * The entity's premises and plant facilities.

           * Information obtained from external sources such as trade and economic journals; reports by analysts, banks, or rating agencies; regulatory or financial publications; or other external documents about the entity's financial performance (such as those referred to in paragraph A79).

           * The behaviours and actions of management or those charged with governance (such as the observation of an audit committee meeting).

Automated tools and techniques

A35.         Automated tools or techniques may also be used to observe or inspect, in particular assets, for example through the use of remote observation tools (e.g., a drone).

Considerations Specific to Public Sector Entities

A36.         Risk assessment procedures performed by auditors of public sector entities may also include observation and inspection of documents prepared by management for the legislature, for example documents related to mandatory performance reporting.

Information from Other Sources (Ref: Para. 15)

Why the Auditor Considers Information from Other Sources

A37.         Information obtained from other sources may be relevant to the identification and assessment of the risks of material misstatement by providing information and insights about:

           * The nature of the entity and its business risks, and what may have changed from previous periods.

           * The integrity and ethical values of management and those charged with governance, which may also be relevant to the auditor's understanding of the control environment.

           * The applicable financial reporting framework and