Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p29
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 86708–90150

A66.         Entities operating in the public sector may create and deliver value in different ways to those creating wealth for owners but will still have a 'business model' with a specific objective.  Matters public sector auditors may obtain an understanding of that are relevant to the business model of the entity, include:

           * Knowledge of relevant government activities, including related programs.

           * Program objectives and strategies, including public policy elements.

A67.         For the audits of public sector entities, "management objectives" may be influenced by requirements to demonstrate public accountability and may include objectives which have their source in law, regulation or other authority.

Industry, Regulatory and Other External Factors (Ref: Para. 19(a)(ii))

Industry factors

A68.         Relevant industry factors include industry conditions such as the competitive environment, supplier and customer relationships, and technological developments.  Matters the auditor may consider include:

           * The market and competition, including demand, capacity, and price competition.

           * Cyclical or seasonal activity.

           * Product technology relating to the entity's products.

           * Energy supply and cost.

A69.         The industry in which the entity operates may give rise to specific risks of material misstatement arising from the nature of the business or the degree of regulation.
Example:

In the construction industry, long-term contracts may involve significant estimates of revenues and expenses that give rise to risks of material misstatement.  In such cases, it is important that the engagement team include members with the appropriate competence and capabilities.[33]

Regulatory factors

A70.         Relevant regulatory factors include the regulatory environment.  The regulatory environment encompasses, among other matters, the applicable financial reporting framework and the legal and political environment and any changes thereto.  Matters the auditor may consider include:

           * Regulatory framework for a regulated industry, for example, prudential requirements, including related disclosures.

           * Legislation and regulation that significantly affect the entity's operations, for example, labour laws and regulations.

           * Taxation legislation and regulations.

           * Government policies currently affecting the conduct of the entity's business, such as monetary, including foreign exchange controls, fiscal, financial incentives (for example, government aid programs), and tariffs or trade restriction policies.

           * Environmental requirements affecting the industry and the entity's business.

A71.         ASA 250 includes some specific requirements related to the legal and regulatory framework applicable to the entity and the industry or sector in which the entity operates.[34]

Considerations specific to public sector entities

A72.         For the audits of public sector entities, there may be particular laws or regulations that affect the entity's operations.  Such elements may be an essential consideration when obtaining an understanding of the entity and its environment.

Other external factors

A73.         Other external factors affecting the entity that the auditor may consider include the general economic conditions, interest rates and availability of financing,