Document ID: chunk:federal_register_of_legislation:F2023C01136:reg:9:p11
Version: federal_register_of_legislation:F2023C01136
Segment Type: reg
Provision Reference: reg 9 (pt 11/24)
Character Range: 34203–37217

risk (e.g., changes to a system affecting revenue recognition).

Areas of Higher Assessed Risk of Material Misstatement, or Significant Risks Identified in Accordance with ASA 315 (Ref: Para. 9(a))

A19.         ASA 260 requires the auditor to communicate with those charged with governance about the significant risks identified by the auditor.[23]  Paragraph A13 of ASA 260 explains that the auditor may also communicate with those charged with governance about how the auditor plans to address areas of higher assessed risks of material misstatement.

A20.         ASA 315 defines a significant risk as an identified risk of material misstatement for which the assessment of inherent risk is close to the upper end of the spectrum of inherent risk due to the degree to which the inherent risk factors affect the combination of the likelihood of a misstatement occurring and the magnitude of the potential misstatement should that misstatement occur.[24]  Areas of significant management judgement and significant unusual transactions may often be identified as significant risks.  Significant risks are therefore often areas that require significant auditor attention.

A21.         However, this may not be the case for all significant risks.  For example, ASA 240 presumes that there are risks of fraud in revenue recognition and requires the auditor to treat those assessed risks of material misstatement due to fraud as significant risks.[25]  In addition, ASA 240 indicates that, due to the unpredictable way in which management override of controls could occur, it is a risk of material misstatement due to fraud and thus a significant risk.[26]  Depending on their nature, these risks may not require significant auditor attention, and therefore would not be considered in the auditor's determination of key audit matters in accordance with paragraph 10.

A22.         ASA 315 explains that the auditor's assessment of the risks of material misstatement at the assertion level may change during the course of the audit as additional audit evidence is obtained.[27]  Revision to the auditor's risk assessment and re‑evaluation of the planned audit procedures with respect to a particular area of the financial report (i.e., a significant change in the audit approach, for example, if the auditor's risk assessment was based on an expectation that certain controls were operating effectively and the auditor has obtained audit evidence that they were not operating effectively throughout the audit period, particularly in an area with higher assessed risk of material misstatement) may result in an area being determined as one requiring significant auditor attention.

Significant Auditor Judgements Relating to Areas in the Financial Report that Involved Significant Management Judgement, Including Accounting Estimates that Are Subject to a High Degree of Estimation Uncertainty (Ref: Para. 9(b))

A23.         ASA 260 requires the auditor to communicate with those charged with governance the auditor's