Document ID: chunk:federal_register_of_legislation:F2017C00907:reg:15:p9
Version: federal_register_of_legislation:F2017C00907
Segment Type: reg
Provision Reference: reg 15 (pt 9/12)
Character Range: 32329–35419

concludes that a classification misstatement is not material in the context of the financial report as a whole, even though it may exceed the materiality level or levels applied in evaluating other misstatements.  For example, a misclassification between balance sheet line items may not be considered material in the context of the financial report as a whole when the amount of the misclassification is small in relation to the size of the related balance sheet line items and the misclassification does not affect the income statement or any key ratios.

A21.         The circumstances related to some misstatements may cause the auditor to evaluate them as material, individually or when considered together with other misstatements accumulated during the audit, even if they are lower than materiality for the financial report as a whole.  Circumstances that may affect the evaluation include the extent to which the misstatement:

           * Affects compliance with regulatory requirements;

           * Affects compliance with debt covenants or other contractual requirements;

           * Relates to the incorrect selection or application of an accounting policy that has an immaterial effect on the current period's financial report but is likely to have a material effect on future periods' financial reports;

           * Masks a change in earnings or other trends, especially in the context of general economic and industry conditions;

           * Affects ratios used to evaluate the entity's financial position, results of operations or cash flows;

           * Affects segment information presented in the financial report (for example, the significance of the matter to a segment or other portion of the entity's business that has been identified as playing a significant role in the entity's operations or profitability);

           * Has the effect of increasing management compensation, for example, by ensuring that the requirements for the award of bonuses or other incentives are satisfied;

           * Is significant having regard to the auditor's understanding of known previous communications to users, for example, in relation to forecast earnings;

           * Relates to items involving particular parties (for example, whether external parties to the transaction are related to members of the entity's management);

           * Is an omission of information not specifically required by the applicable financial reporting framework but which, in the judgement of the auditor, is important to the users' understanding of the financial position, financial performance or cash flows of the entity; or

           * Affects other information to be included in the entity's annual report  (for example, information to be included in a "Management Discussion and Analysis" or an "Operating and Financial Review") that may reasonably be expected to influence the economic decisions of the users of the financial report. ASA 720[15] deals with the auditor's responsibilities relating to other information.

    These circumstances are only examples; not all