Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p20
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 20/63)
Character Range: 69689–72995

process (Ref: Para. 13(g))

A32.         Understanding how the entity's risk assessment process identifies and addresses risks relating to accounting estimates may assist the auditor in considering changes in:

           * The requirements of the applicable financial reporting framework related to the accounting estimates;

           * The availability or nature of data sources that are relevant to making the accounting estimates or that may affect the reliability of the data used;

           * The entity's information systems or IT environment; and

           * Key personnel.

A33.         Matters that the auditor may consider in obtaining an understanding of how management identified and addresses the susceptibility to misstatement due to management bias or fraud in making accounting estimates, include whether and, if so, how management:

           * Pays particular attention to selecting or applying the methods, assumptions and data used in making accounting estimates.

           * Monitors key performance indicators that may indicate unexpected or inconsistent performance compared with historical or budgeted performance or with other known factors.

           * Identifies financial or other incentives that may be a motivation for bias.

           * Monitors the need for changes in the methods, significant assumptions or the data used in making accounting estimates.

           * Establishes appropriate oversight and review of models used in making accounting estimates.

           * Requires documentation of the rationale for, or an independent review of, significant judgements made in making accounting estimates.

The entity's information system relating to accounting estimates (Ref: Para. 13(h)(i))

A34.         The significant classes of transactions, events and conditions within the scope of paragraph 13(h) are the same as the significant classes of transactions, events and conditions relating to accounting estimates and related disclosures that are subject to paragraphs 25(a) of ASA 315. In obtaining the understanding of the entity's information system as it relates to accounting estimates, the auditor may consider:

           * Whether the accounting estimates arise from the recording of routine and recurring transactions or whether they arise from non‑recurring or unusual transactions.

           * How the information system addresses the completeness of accounting estimates and related disclosures, in particular for accounting estimates related to liabilities.

A35.         During the audit, the auditor may identify classes of transactions, events or conditions that give rise to the need for accounting estimates and related disclosures that management failed to identify. ASA 315  deals with circumstances where the auditor identifies risks of material misstatement that management failed to identify, including considering the implications for the auditor's evaluation of the entity's risk assessment process.[38]

Management's identification of the relevant methods, assumptions and sources of data (Ref: Para. 13(h)(ii)(a))

A36.         If management has changed the method for making an accounting estimate, considerations may include whether the new method is, for example, more appropriate, is itself a response to changes in the