Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p73
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 211881–215188

engages with those markets or spheres (main products, customer segments and distribution methods), and the basis on which it competes.

           * The entity's business or operating processes (e.g., investment, financing and operating processes) employed in performing its activities, focusing on those parts of the business processes that are important in creating, preserving or capturing value.

           * The resources (e.g., financial, human, intellectual, environmental and technological) and other inputs and relationships (e.g., customers, competitors, suppliers and employees) that are necessary or important to its success.

           * How the entity's business model integrates the use of IT in its interactions with customers, suppliers, lenders and other stakeholders through IT interfaces and other technologies.

4.                   A business risk may have an immediate consequence for the risk of material misstatement for classes of transactions, account balances, and disclosures at the assertion level or the financial report level.  For example, the business risk arising from a significant fall in real estate market values may increase the risk of material misstatement associated with the valuation assertion for a lender of medium-term real estate backed loans.  However, the same risk, particularly in combination with a severe economic downturn that concurrently increases the underlying risk of lifetime credit losses on its loans, may also have a longer-term consequence.  The resulting net exposure to credit losses may cast significant doubt on the entity's ability to continue as a going concern.  If so, this could have implications for management's, and the auditor's, conclusion as to the appropriateness of the entity's use of the going concern basis of accounting, and determination as to whether a material uncertainty exists.  Whether a business risk may result in a risk of material misstatement is, therefore, considered in light of the entity's circumstances.  Examples of events and conditions that may give rise to the existence of risks of material misstatement are indicated in Appendix 2.

Activities of the Entity

5.                   Examples of matters that the auditor may consider when obtaining an understanding of the activities of the entity (included in the entity's business model) include:

(e)                Business operations such as:

               * Nature of revenue sources, products or services, and markets, including involvement in electronic commerce such as Internet sales and marketing activities.

               * Conduct of operations (for example, stages and methods of production, or activities exposed to environmental risks).

               * Alliances, joint ventures, and outsourcing activities.

               * Geographic dispersion and industry segmentation.

               * Location of production facilities, warehouses, and offices, and location and quantities of inventories.

               * Key customers and important suppliers of goods and services, employment arrangements (including the existence of union contracts, superannuation and other post- employment benefits, stock option or incentive bonus arrangements, and government regulation related to employment matters).

               * Research