Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p46
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 46/47)
Character Range: 141667–145040

by paying their invoices or complaining about their charges.  In addition, regulators may communicate with the entity concerning matters that affect the functioning of internal control, for example, communications concerning examinations by bank regulatory agencies.  Also, management may consider communications relating to internal control from external auditors in performing monitoring activities.

Appendix 2

(Ref: Para. A41 and A133 )

Conditions and Events That May Indicate Risks of Material Misstatement

The following are examples of conditions and events that may indicate the existence of risks of material misstatement in the financial report.  The examples provided cover a broad range of conditions and events; however, not all conditions and events are relevant to every audit engagement and the list of examples is not necessarily complete.

      * Operations in regions that are economically unstable, for example, countries with significant currency devaluation or highly inflationary economies.

      * Operations exposed to volatile markets, for example, futures trading.

      * Operations that are subject to a high degree of complex regulation.

      * Going concern and liquidity issues including loss of significant customers.

      * Constraints on the availability of capital and credit.

      * Changes in the industry in which the entity operates.

      * Changes in the supply chain.

      * Developing or offering new products or services, or moving into new lines of business.

      * Expanding into new locations.

      * Changes in the entity such as large acquisitions or reorganisations or other unusual events.

      * Entities or business segments likely to be sold.

      * The existence of complex alliances and joint ventures.

      * Use of off‑balance‑sheet finance, special‑purpose entities, and other complex financing arrangements.

      * Significant transactions with related parties.

      * Lack of personnel with appropriate accounting and financial reporting skills.

      * Changes in key personnel including departure of key executives.

      * Deficiencies in internal control, especially those not addressed by management.

      * Incentives for management and employees to engage in fraudulent financial reporting.

      * Inconsistencies between the entity's IT strategy and its business strategies.

      * Changes in the IT environment.

      * Installation of significant new IT systems related to financial reporting.

      * Enquiries into the entity's operations or financial results by regulatory or government bodies.

      * Past misstatements, history of errors or a significant amount of adjustments at period end.

      * Significant amount of non‑routine or non‑systematic transactions including intercompany transactions and large revenue transactions at period end.

      * Transactions that are recorded based on management's intent, for example, debt refinancing, assets to be sold and classification of marketable securities.

      * Application of new accounting pronouncements.

      * Accounting measurements that involve complex processes.

      * Events or transactions that involve significant measurement uncertainty, including accounting estimates, and related disclosures.

      * Omission, or obscuring, of significant information in disclosures.

      *