Document ID: chunk:federal_register_of_legislation:F2023C00337:reg:1:p10
Version: federal_register_of_legislation:F2023C00337
Segment Type: reg
Provision Reference: reg 1 (pt 10/23)
Character Range: 35321–38418

accept the audit engagement, the auditor may need to explain to management the importance of these matters, and the implications for the auditor's report.

Preparation of the Financial Report (Ref: Para. 6(b)(i))

A15.         Most financial reporting frameworks include requirements relating to the presentation of the financial report; for such frameworks, preparation of the financial report in accordance with the financial reporting framework includes presentation.  In the case of a fair presentation framework, the importance of the reporting objective of fair presentation is such that the premise agreed with management includes specific reference to fair presentation, or to the responsibility to ensure that the financial report will "give a true and fair view" in accordance with the financial reporting framework.

Internal Control (Ref: Para. 6(b)(ii))

A16.         Management maintains such internal control as it determines is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.  Internal control, no matter how effective, can provide an entity with only reasonable assurance about achieving the entity's financial reporting objectives due to the inherent limitations of internal control.[14]

A17.         An independent audit conducted in accordance with the Australian Auditing Standards does not act as a substitute for the maintenance of internal control necessary for the preparation of the financial report by management.  Accordingly, the auditor is required to obtain the agreement of management that it acknowledges and understands its responsibility for internal control.  However, the agreement required by paragraph 6(b)(ii) does not imply that the auditor will find that internal control maintained by management has achieved its purpose or will be free of deficiencies.

A18.         It is for management to determine what internal control is necessary to enable the preparation of the financial report.  The term "internal control" encompasses a wide range of activities within components of the system of internal control that may be described as the control environment; the entity's risk assessment process; the entity's process to monitor the system of internal control, the information system and communication; and control activities.  This division, however, does not necessarily reflect how a particular entity may design, implement and maintain its internal control, or how it may classify any particular component.[15]  An entity's internal control (in particular, its accounting books and records, or accounting systems) will reflect the needs of management, the complexity of the business, the nature of the risks to which the entity is subject, and relevant laws or regulation.

A19.         In some jurisdictions, law or regulation may refer to the responsibility of management for the adequacy of accounting books and records, or accounting systems.  In some cases, general practice may assume a distinction between accounting books and records or accounting systems on