Document ID: chunk:federal_register_of_legislation:F2023C00341:reg:4:p37
Version: federal_register_of_legislation:F2023C00341
Segment Type: reg
Provision Reference: reg 4 (pt 37/42)
Character Range: 113676–117030

required by the applicable financial reporting framework.

           * Business rationale for the events and transactions that gave rise to the consolidation adjustments.

           * Frequency, nature and size of transactions between components.

           * Procedures for monitoring, controlling, reconciling and eliminating intra‑group transactions and unrealised profits, and intra‑group account balances.

           * Steps taken to arrive at the fair value of acquired assets and liabilities, procedures for amortising goodwill (where applicable), and impairment testing of goodwill, in accordance with the applicable financial reporting framework.

           * Arrangements with a majority owner or minority interests regarding losses incurred by a component (for example, an obligation of the minority interest to make good such losses).

Appendix 3

(Ref: Para. A30)

Examples of Conditions or Events that May Indicate Risks of Material Misstatement of the Group Financial Report

The examples provided cover a broad range of conditions or events; however, not all conditions or events are relevant to every group audit engagement and the list of examples is not exhaustive.

      * A complex group structure, especially where there are frequent acquisitions, disposals or reorganisations.

      * Poor corporate governance structures, including decision‑making processes, that are not transparent.

      * Non‑existent or ineffective group‑wide controls, including inadequate group management information on monitoring of components' operations and their results.

      * Components operating in foreign jurisdictions that may be exposed to factors such as unusual government intervention in areas such as trade and fiscal policy, and restrictions on currency and dividend movements; and fluctuations in exchange rates.

      * Business activities of components that involve high risk, such as long‑term contracts or trading in innovative or complex financial instruments.

      * Uncertainties regarding which components' financial information require incorporation in the group financial report in accordance with the applicable financial reporting framework, for example whether any special‑purpose entities or non‑trading entities exist and require incorporation.

      * Unusual related party relationships and transactions.

      * Prior occurrences of intra‑group account balances that did not balance or reconcile on consolidation.

      * The existence of complex transactions that are accounted for in more than one component.

      * Components' application of accounting policies that differ from those applied to the group financial report.

      * Components with different financial year‑ends, which may be utilised to manipulate the timing of transactions.

      * Prior occurrences of unauthorised or incomplete consolidation adjustments.

      * Aggressive tax planning within the group, or large cash transactions with entities in tax havens.

      * Frequent changes of auditors engaged to audit the financial report of components.

Appendix 4

(Ref: Para. A35)

Examples of a Component Auditor's Confirmations

The following is not intended to be a standard letter.  Confirmations may vary from one component auditor to another and from one period to the next.

Confirmations often are obtained before