Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p6
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 6/47)
Character Range: 23106–26471

significant to the financial report;

(e)                The financial reporting process used to prepare the entity's financial report, including significant accounting estimates and disclosures; and

(f)                 Controls surrounding journal entries, including non‑standard journal entries used to record non‑recurring, unusual transactions or adjustments.  (Ref: Para. A93-A94)

    This understanding of the information system relevant to financial reporting shall include relevant aspects of that system relating to information disclosed in the financial report that is obtained from within or outside of the general and subsidiary ledgers.

19.               The auditor shall obtain an understanding of how the entity communicates financial reporting roles and responsibilities and significant matters relating to financial reporting, including: (Ref: Para. A97-A98)

(a)                Communications between management and those charged with governance; and

(b)                External communications, such as those with regulatory authorities.

Control activities relevant to the audit

20.               The auditor shall obtain an understanding of control activities relevant to the audit, being those the auditor judges it necessary to understand in order to assess the risks of material misstatement at the assertion level and design further audit procedures responsive to assessed risks.  An audit does not require an understanding of all the control activities related to each significant class of transactions, account balance, and disclosure in the financial report or to every assertion relevant to them.  (Ref: Para. A93-A106)

21.               In understanding the entity's control activities, the auditor shall obtain an understanding of how the entity has responded to risks arising from IT.  (Ref: Para. A107-A109)

Monitoring of controls

22.               The auditor shall obtain an understanding of the major activities that the entity uses to monitor internal control relevant to financial reporting, including those related to those control activities relevant to the audit, and how the entity initiates remedial actions to address deficiencies in its controls.  (Ref: Para. A110-A112)

23.               If the entity has an internal audit function,[1] the auditor shall obtain an understanding of the nature of the internal audit function's responsibilities, its organisational status, and the activities performed, or to be performed.  (Ref: Para. A113-A120)

24.               The auditor shall obtain an understanding of the sources of the information used in the entity's monitoring activities, and the basis upon which management considers the information to be sufficiently reliable for the purpose.  (Ref: Para. A121)

Identifying and Assessing the Risks of Material Misstatement

25.               The auditor shall identify and assess the risks of material misstatement at:

(a)                the financial report level; and  (Ref: Para. A122-A125)

(b)                the assertion level for classes of transactions, account balances, and disclosures (Ref: Para. A126-A131)

    to provide a basis for designing and performing further audit procedures.

26.               For this purpose, the auditor shall:

(a)                Identify risks throughout the process of obtaining an understanding of the entity and