Document ID: chunk:federal_register_of_legislation:F2023C01124:reg:17:p33
Version: federal_register_of_legislation:F2023C01124
Segment Type: reg
Provision Reference: reg 17 (pt 33/41)
Character Range: 104103–107467

control is not effective.

There is a complex or unstable organisational structure, as evidenced by the following:

      * Difficulty in determining the organisation or individuals that have a controlling interest in the entity.

      * Overly complex organisational structure involving unusual legal entities or managerial lines of authority.

      * High turnover of senior management, legal counsel, or those charged with governance.

Deficiencies in internal control as a result of the following:

      * Inadequate process to monitor the entity's system of internal control, including automated controls and controls over interim financial reporting (where external reporting is required).

      * High turnover rates or employment of staff in accounting, information technology or the internal audit function that are not effective.

      * Accounting and information systems that are not effective, including situations involving significant deficiencies in internal control.

Attitudes/Rationalisations

      * Communication, implementation, support, or enforcement of the entity's values or ethical standards by management, or the communication of inappropriate values or ethical standards, that are not effective.

      * Non‑financial management's excessive participation in or preoccupation with the selection of accounting policies or the determination of significant estimates.

      * Known history of violations of securities laws or other laws and regulations, or claims against the entity, its senior management, or those charged with governance alleging fraud or violations of laws and regulations.

      * Excessive interest by management in maintaining or increasing the entity's share price or earnings trend.

      * The practice by management of committing to analysts, creditors, and other third parties to achieve aggressive or unrealistic forecasts.

      * Management failing to remedy known significant deficiencies in internal control on a timely basis.

      * An interest by management in employing inappropriate means to minimise reported earnings for tax‑motivated reasons.

      * Low morale among senior management.

      * The owner‑manager makes no distinction between personal and business transactions.

      * Dispute between shareholders in a closely held entity.

      * Recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality.

      * The relationship between management and the current or predecessor auditor is strained, as exhibited by the following:

              + Frequent disputes with the current or predecessor auditor on accounting, auditing, or reporting matters.

              + Unreasonable demands on the auditor, such as unrealistic time constraints regarding the completion of the audit or the issuance of the auditor's report.

              + Restrictions on the auditor that inappropriately limit access to people or information or the ability to communicate effectively with those charged with governance.

              + Domineering management behaviour in dealing with the auditor, especially involving attempts to influence the scope of the auditor's work or the selection or continuance of personnel assigned to or consulted on the audit engagement.

Risk Factors Relating to Misstatements Arising From Misappropriation of