Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p49
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 49/63)
Character Range: 153020–156112

the relevant requirements in this Auditing Standard to those assumptions.

A131.      If the work of a management's expert involves the use of methods or sources of data relating to accounting estimates, or developing or providing findings or conclusions relating to a point estimate or related disclosures for inclusion in the financial report, the requirements in paragraphs 21–29 of this Auditing Standard may assist the auditor in applying paragraph 8(c) of ASA 500.

Service Organisations

A132.      ASA 402[60] deals with the auditor's understanding of the services provided by a service organisation, including internal control, as well as the auditor's responses to assessed risks of material misstatement. When the entity uses the services of a service organisation in making accounting estimates, the requirements and guidance in ASA 402 may therefore assist the auditor in applying the requirements of this Auditing Standard.

Indicators of Possible Management Bias (Ref: Para. 32)

A133.      Management bias may be difficult to detect at an account level and may only be identified by the auditor when considering groups of accounting estimates, all accounting estimates in aggregate, or when observed over a number of accounting periods. For example, if accounting estimates included in the financial report are considered to be individually reasonable but management's point estimates consistently trend toward one end of the auditor's range of reasonable outcomes that provide a more favourable financial reporting outcome for management, such circumstances may indicate possible bias by management.

A134.      Examples of indicators of possible management bias with respect to accounting estimates include:

           * Changes in an accounting estimate, or the method for making it, when management has made a subjective assessment that there has been a change in circumstances.

           * Selection or development of significant assumptions or the data that yield a point estimate favourable for management objectives.

           * Selection of a point estimate that may indicate a pattern of optimism or pessimism.

When such indicators are identified, there may be a risk of material misstatement either at the assertion or financial statement level. Indicators of possible management bias themselves do not constitute misstatements for purposes of drawing conclusions on the reasonableness of individual accounting estimates. However, in some cases the audit evidence may point to a misstatement rather than simply an indicator of management bias.

A135.      Indicators of possible management bias may affect the auditor's conclusion as to whether the auditor's risk assessment and related responses remain appropriate. The auditor may also need to consider the implications for other aspects of the audit, including the need to further question the appropriateness of management's judgements in making accounting estimates. Further, indicators of possible management bias may affect the auditor's conclusion as to whether the financial report as a whole is free