Document ID: chunk:federal_register_of_legislation:F2020L00252:body:0:p40
Version: federal_register_of_legislation:F2020L00252
Segment Type: other
Provision Reference: 
Character Range: 111957–115005

that address such complexity or subjectivity may be.  When complexity in relation to models is present, controls over data integrity are also more likely to be identified controls in accordance with ASA 315 relevant to the audit.  Factors that may be appropriate for the auditor to consider in obtaining an understanding of the model and of related identified controls activities relevant to the audit include the following:

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160.           Existing paragraph A44 is amended to read as follows:

Matters that the auditor may consider in obtaining an understanding of how management selects the data on which the accounting estimates are based include:

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           * The complexity of IT applications or other aspects of the entity's IT environment the information technology systems used to obtain and process the data, including when this involves handling large volumes of data.

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161.           Existing section heading before paragraph A50 has been amended to read Identified Controls Activities Relevant to the Audit Over Management's Process for Making Accounting Estimates (Ref: Para 13(i))

162.           Existing paragraph A50 is amended to read as follows:

The auditor's judgement in identifying controls relevant to the auditin the controls activities component, and therefore the need to evaluate the design of those controls and determine whether they have been implemented, relates to management's process described in paragraph 13(h)(ii).  The auditor may not identify relevant controls activities in relation to all the elements aspects of paragraph 13(h)(ii)., depending on the complexity associated with the accounting estimate.

163.           Existing paragraph A51 is amended to read as follows:

As part of obtaining an understanding of identifying the controls activities relevant to the audit, and evaluating their design and determining whether they have been implemented, the auditor may consider:

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           * The effectiveness of the design of the controls.  activities.  Generally, it may be more difficult for management to design controls that address subjectivity and estimation uncertainty in a manner that effectively prevents, or detects and corrects, material misstatements, than it is to design controls that address complexity.  Controls that address subjectivity and estimation uncertainty may need to include more manual elements, which may be less reliable than automated controls as they can be more easily bypassed, ignored or overridden by management.  The design effectiveness of controls addressing complexity may vary depending on the reason for, and the nature of, the complexity.  For example, it may be easier to design more effective controls related to a method that is routinely used or over the integrity of data.

164.           Existing paragraph A52 is amended to read as follows:

When management makes extensive use of information technology in making an accounting estimate, identified controls relevant to the audit in the control activities component are likely to include