Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p26
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 78167–81229

in multiple locations.  Further, the legal structure may be different from the operating structure.  Complex structures often introduce factors that may give rise to increased susceptibility to risks of material misstatement.  Such issues may include whether goodwill, joint ventures, investments, or special-purpose entities are accounted for appropriately and whether adequate disclosure of such issues in the financial report has been made.

           * The ownership, and relationships between owners and other people or entities, including related parties.  This understanding may assist in determining whether related party transactions have been appropriately identified, accounted for, and adequately disclosed in the financial report.[31]

           * The distinction between the owners, those charged with governance and management.
Example:

In less complex entities, owners of the entity may be involved in managing the entity, therefore there is little or no distinction.  In contrast, such as in some listed entities, there may be a clear distinction between management, the owners of the entity, and those charged with governance.[32]

           * The structure and complexity of the entity's IT environment.
Examples:

An entity may:

      * Have multiple legacy IT systems in diverse businesses that are not well integrated resulting in a complex IT environment.

      * Be using external or internal service providers for aspects of its IT environment (e.g., outsourcing the hosting of its IT environment to a third party or using a shared service centre for central management of IT processes in a group).

Automated tools and techniques

A57.         The auditor may use automated tools and techniques to understand flows of transactions and processing as part of the auditor's procedures to understand the information system.  An outcome of these procedures may be that the auditor obtains information about the entity's organisational structure or those with whom the entity conducts business (e.g., vendors, customers, related parties).

Considerations specific to public sector entities

A58.         Ownership of a public sector entity may not have the same relevance as in the private sector because decisions related to the entity may be made outside of the entity as a result of political processes.  Therefore, management may not have control over certain decisions that are made.  Matters that may be relevant include understanding the ability of the entity to make unilateral decisions, and the ability of other public sector entities to control or influence the entity's mandate and strategic direction.
Example:

A public sector entity may be subject to laws or other directives from authorities that require it to obtain approval from parties external to the entity of its strategy and objectives prior to it implementing them.  Therefore, matters related to understanding the legal structure of the entity may include applicable laws and regulations, and the classification of the entity (i.e., whether the entity is