Document ID: chunk:federal_register_of_legislation:F2017C00907:reg:15:p7
Version: federal_register_of_legislation:F2017C00907
Segment Type: reg
Provision Reference: reg 15 (pt 7/12)
Character Range: 26542–29693

misstatement of future financial reports because of the cumulative effect of immaterial uncorrected misstatements related to prior periods.

A13.         ASA 700 requires the auditor to evaluate whether the financial report is prepared and presented, in all material respects, in accordance with the requirements of the applicable financial reporting framework.  This evaluation includes consideration of the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's judgements,[11] which may be affected by the auditor's understanding of management's reasons for not making the corrections.

Evaluating the Effect of Uncorrected Misstatements (Ref: Para. 10‑11)

A14.         The auditor's determination of materiality in accordance with ASA 320 is often based on estimates of the entity's financial results, because the actual financial results may not yet be known.  Therefore, prior to the auditor's evaluation of the effect of uncorrected misstatements, it may be necessary to revise materiality determined in accordance with ASA 320 based on the actual financial results.

A15.         ASA 320 explains that, as the audit progresses, materiality for the financial report as a whole (and, if applicable, the materiality level or levels for particular classes of transactions, account balances or disclosures) is revised in the event of the auditor becoming aware of information during the audit that would have caused the auditor to have determined a different amount (or amounts) initially.[12]  Thus, any significant revision is likely to have been made before the auditor evaluates the effect of uncorrected misstatements.  However, if the auditor's reassessment of materiality determined in accordance with ASA 320 (see paragraph 10) gives rise to a lower amount (or amounts), then performance materiality and the appropriateness of the nature, timing and extent of the further audit procedures are reconsidered so as to obtain sufficient appropriate audit evidence on which to base the audit opinion.

A16.         Each individual misstatement of an amount is considered to evaluate its effect on the relevant classes of transactions, account balances or disclosures, including whether the materiality level for that particular class of transactions, account balance or disclosure, if any, has been exceeded.

A17.         In addition, each individual misstatement of a qualitative disclosure is considered to evaluate its effect on the relevant disclosure(s), as well as its overall effect on the financial report as a whole.  The determination of whether a misstatement(s) in a qualitative disclosure is material, in the context of the applicable financial reporting framework and the specific circumstances of the entity, is a matter that involves the exercise of professional judgement.  Examples where such misstatements may be material include:

           * Inaccurate or incomplete descriptions of information about the objectives, policies and processes for managing capital for entities with insurance and banking activities.

           * The omission of information about the