Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p7
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 7/47)
Character Range: 26160–29440

transactions, account balances, and disclosures (Ref: Para. A126-A131)

    to provide a basis for designing and performing further audit procedures.

26.               For this purpose, the auditor shall:

(a)                Identify risks throughout the process of obtaining an understanding of the entity and its environment, including relevant controls that relate to the risks, and by considering the classes of transactions, account balances, and disclosures (including the quantitative or qualitative aspects of such disclosures) in the financial report; (Ref: Para. A132-A137)

(b)                Assess the identified risks, and evaluate whether they relate more pervasively to the financial report as a whole and potentially affect many assertions;

(c)                Relate the identified risks to what can go wrong at the assertion level, taking account of relevant controls that the auditor intends to test; and  (Ref: Para. A138-A140)

(d)                Consider the likelihood of misstatement, including the possibility of multiple misstatements, and whether the potential misstatement could result in a material misstatement.  (Ref: Para. A137)

Risks that Require Special Audit Consideration

27.               As part of the risk assessment as described in paragraph 25 of this Auditing Standard, the auditor shall determine whether any of the risks identified are, in the auditor's judgement, a significant risk.  In exercising this judgement, the auditor shall exclude the effects of identified controls related to the risk.

28.               In exercising judgement as to which risks are significant risks, the auditor shall consider at least the following:

(a)                Whether the risk is a risk of fraud;

(b)                Whether the risk is related to recent significant economic, accounting or other developments and, therefore, requires specific attention;

(c)                The complexity of transactions;

(d)                Whether the risk involves significant transactions with related parties;

(e)                The degree of subjectivity in the measurement of financial information related to the risk, especially those measurements involving a wide range of measurement uncertainty; and

(f)                 Whether the risk involves significant transactions that are outside the normal course of business for the entity, or that otherwise appear to be unusual.  (Ref: Para. A141-A145)

29.               If the auditor has determined that a significant risk exists, the auditor shall obtain an understanding of the entity's controls, including control activities, relevant to that risk.  (Ref: Para. A146-A148)

Risks for Which Substantive Procedures Alone Do Not Provide Sufficient Appropriate Audit Evidence

30.               In respect of some risks, the auditor may judge that it is not possible or practicable to obtain sufficient appropriate audit evidence only from substantive procedures.  Such risks may relate to the inaccurate or incomplete recording of routine and significant classes of transactions or account balances, the characteristics of which often permit highly automated processing with little or no manual intervention.  In such cases, the entity's controls over such risks are relevant to the audit and