Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p72
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 209126–212179

of information from the entity and the audit methodology and technology used in the course of the audit.  It is not necessary to document the entirety of the auditor's understanding of the entity and matters related to it.  Key elements[67] of understanding documented by the auditor may include those on which the auditor based the assessment of the risks of material misstatement.  However, the auditor is not required to document every inherent risk factor that was taken into account in identifying and assessing the risks of material misstatement at the assertion level.
Example:

In audits of less complex entities audit documentation may be incorporated in the auditor's documentation of the overall strategy and audit plan.[68] Similarly, for example, the results of the risk assessment may be documented separately, or may be documented as part of the auditor's documentation of further audit procedures.[69]

Appendix 1

(Ref: Para. A61‒A67)

Considerations for Understanding the Entity and its Business Model

This appendix explains the objectives and scope of the entity's business model and provides examples of matters that the auditor may consider in understanding the activities of the entity that may be included in the business model.  The auditor's understanding of the entity's business model, and how it is affected by its business strategy and business objectives, may assist the auditor in identifying business risks that may have an effect on the financial report.  In addition, this may assist the auditor in identifying risks of material misstatement.

Objectives and Scope of an Entity's Business Model

      1. An entity's business model describes how an entity considers, for example its organisational structure, operations or scope of activities, business lines (including competitors and customers thereof), processes, growth opportunities, globalization, regulatory requirements and technologies.  The entity's business model describes how the entity creates, preserves and captures financial or broader value, for its stakeholders.

      2. Strategies are the approaches by which management plans to achieve the entity's objectives, including how the entity plans to address the risks and opportunities that it faces.  An entity's strategies are changed over time by management, to respond to changes in its objectives and in the internal and external circumstances in which it operates.

      3. A description of a business model typically includes:

           * The scope of the entity's activities, and why it does them.

           * The entity's structure and scale of its operations.

           * The markets or geographical or demographic spheres, and parts of the value chain, in which it operates, how it engages with those markets or spheres (main products, customer segments and distribution methods), and the basis on which it competes.

           * The entity's business or operating processes (e.g., investment, financing and operating processes) employed in performing its activities, focusing on