Document ID: chunk:federal_register_of_legislation:F2023C01137:body:0:p10
Version: federal_register_of_legislation:F2023C01137
Segment Type: other
Provision Reference: 
Character Range: 26782–30169

as to whether reasonable assurance has been obtained about whether the financial report as a whole is free from material misstatement.[6]  This conclusion takes into account the auditor's evaluation of uncorrected misstatements, if any, on the financial report in accordance with ASA 450.[7]

A3.             ASA 450 defines a misstatement as a difference between the reported amount, classification, presentation, or disclosure of a financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework.  Accordingly, a material misstatement of the financial report may arise in relation to:

(a)                The appropriateness of the selected accounting policies;

(b)                The application of the selected accounting policies; or

(c)                The appropriateness or adequacy of disclosures in the financial report.

Appropriateness of the Selected Accounting Policies

A4.             In relation to the appropriateness of the accounting policies management has selected, material misstatements of the financial report may arise, for example, when:

(a)                The selected accounting policies are not consistent with the applicable financial reporting framework;

(b)                The financial report does not correctly describe an accounting policy relating to a significant item in the statement of financial position, the statement of comprehensive income, the statement of changes in equity or the statement of cash flows; or

(c)                The financial report does not represent or disclose the underlying transactions and events in a manner that achieves fair presentation.

A5.             Financial reporting frameworks often contain requirements for the accounting for, and disclosure of, changes in accounting policies.  Where the entity has changed its selection of significant accounting policies, a material misstatement of the financial report may arise when the entity has not complied with these requirements.

Application of the Selected Accounting Policies

A6.             In relation to the application of the selected accounting policies, material misstatements of the financial report may arise:

(a)                When management has not applied the selected accounting policies consistently with the financial reporting framework, including when management has not applied the selected accounting policies consistently between periods or to similar transactions and events (consistency in application); or

(b)                Due to the method of application of the selected accounting policies (such as an unintentional error in application).

Appropriateness or Adequacy of Disclosures in the Financial Report

A7.             In relation to the appropriateness or adequacy of disclosures in the financial report, material misstatements of the financial report may arise when:

(a)                The financial report does not include all of the disclosures required by the applicable financial reporting framework;

(b)                The disclosures in the financial report are not presented in accordance with the applicable financial reporting framework; or

(c)                The financial report does not provide the additional disclosures necessary to achieve fair presentation beyond disclosures