Document ID: chunk:federal_register_of_legislation:F2023C01140:reg:39:p15
Version: federal_register_of_legislation:F2023C01140
Segment Type: reg
Provision Reference: reg 39 (pt 15/53)
Character Range: 51614–54951

as a whole is materially misstated include the following:

           * The selective correction of misstatements brought to management's attention during the audit (e.g., correcting misstatements with the effect of increasing reported earnings, but not correcting misstatements that have the effect of decreasing reported earnings).

           * Possible management bias in the making of accounting estimates.

A3.             ASA 540 addresses possible management bias in making accounting estimates.[21]  Indicators of possible management bias do not constitute misstatements for purposes of drawing conclusions on the reasonableness of individual accounting estimates.  They may, however, affect the auditor's evaluation of whether the financial report as a whole is free from material misstatement.

Accounting Policies Appropriately Disclosed in the Financial Report (Ref: Para. 13(a))

A4.             In evaluating whether the financial report appropriately discloses the significant accounting policies selected and applied, the auditor's consideration includes matters such as:

      * Whether all disclosures related to the significant accounting policies that are required to be included by the applicable financial reporting framework have been disclosed;

      * Whether the information about the significant accounting policies that has been disclosed is relevant and therefore reflects how the recognition, measurement and presentation criteria in the applicable financial reporting framework have been applied to classes of transactions, account balances and disclosures in the financial report in the particular circumstances of the entity's operations and its environment; and

      * The clarity with which the significant accounting policies have been presented.

Information Presented in the Financial Report Is Relevant, Reliable, Comparable and Understandable (Ref: Para. 13(d))

A5.             Evaluating the understandability of the financial report includes consideration of such matters as whether:

           * The information in the financial report is presented in a clear and concise manner.

           * The placement of significant disclosures gives appropriate prominence to them (e.g., when there is perceived value of entity‑specific information to users), and whether the disclosures are appropriately cross‑referenced in a manner that would not give rise to significant challenges for users in identifying necessary information.

Disclosures of the Effect of Material Transactions and Events on the Information Conveyed in the Financial Report (Ref: Para. 13(e))

A6.             It is common for a financial report prepared in accordance with a general purpose framework to present an entity's financial position, financial performance and cash flows.  Evaluating whether, in view of the applicable financial reporting framework, the financial report provides adequate disclosures to enable the intended users to understand the effect of material transactions and events on the entity's financial position, financial performance and cash flows includes consideration of such matters as:

           * The extent to which the information in the financial report is relevant and specific to the circumstances of the entity; and

           * Whether the disclosures are adequate to assist the