Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p18
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 18/63)
Character Range: 63719–66999

fair value, for example, by referring to management's intentions to carry out certain courses of action with respect to an asset or liability; or

                   + Specifies required or suggested disclosures, including disclosures concerning judgements, assumptions, or other sources of estimation uncertainty relating to accounting estimates; and

           * Changes in the applicable financial reporting framework require changes to the entity's accounting policies relating to accounting estimates.

Regulatory factors (Ref: Para. 13(c))

A26.         Obtaining an understanding of regulatory factors, if any, that are relevant to accounting estimates may assist the auditor in identifying applicable regulatory frameworks (for example, regulatory frameworks established by prudential supervisors in the banking or insurance industries) and in determining whether such regulatory framework(s):

           * Addresses conditions for the recognition, or methods for the measurement, of accounting estimates, or provides related guidance thereon;

           * Specifies, or provides guidance about, disclosures in addition to the requirements of the applicable financial reporting framework;

           * Provides an indication of areas for which there may be a potential for management bias to meet regulatory requirements; or

           * Contains requirements for regulatory purposes that are not consistent with requirements of the applicable financial reporting framework, which may indicate potential risks of material misstatement. For example, some regulators may seek to influence minimum levels for expected credit loss provisions that exceed those required by the applicable financial reporting framework.

The nature of the accounting estimates and related disclosures that the auditor expects to be included in the financial report (Ref: Para. 13(d))

A27.         Obtaining an understanding of the nature of accounting estimates and related disclosures that the auditor expects to be included in the entity's financial report assists the auditor in understanding the measurement basis of such accounting estimates and the nature and extent of disclosures that may be relevant. Such an understanding provides the auditor with a basis for discussion with management about how management makes the accounting estimates.

The Entity's System of Internal Control

The nature and extent of oversight and governance (Ref: Para. 13(e))

A28.         In applying ASA 315,[35] the auditor's understanding of the nature and extent of oversight and governance that the entity has in place over management's process for making accounting estimates may be important to the auditor's required evaluation of whether:

           * Management, with the oversight of those charged with governance, has created and maintained a culture of honesty and ethical behaviour;

           * The control environment provides an appropriate foundation for the other components of the system of internal control considering the nature and size of the entity; and

           * Control deficiencies identified in the control environment undermine the other components of the system of internal control.

A29.         The auditor may obtain an understanding of whether those charged with