Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p26
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 26/63)
Character Range: 87354–90474

the assumptions or data used in their development, by appropriate levels of management and, where appropriate, those charged with governance.

           * The segregation of duties between those responsible for making the accounting estimates and those committing the entity to the related transactions, including whether the assignment of responsibilities appropriately takes account of the nature of the entity and its products or services. For example, in the case of a large financial institution, relevant segregation of duties may consist of an independent function responsible for estimation and validation of fair value pricing of the entity's financial products staffed by individuals whose remuneration is not tied to such products.

           * The effectiveness of the design of the controls. 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.

A52.         When management makes extensive use of information technology in making an accounting estimate, identified controls in the control activities component are likely to include general IT controls and information processing controls. Such controls may address risks related to:

           * Whether the IT applications or other aspects of the IT environment has the capability and is appropriately configured to process large volumes of data;

           * Complex calculations in applying a method. When diverse IT applications are required to process complex transactions, regular reconciliations between the IT applications are made, in particular when the IT applications do not have automated interfaces or may be subject to manual intervention;

           * Whether the design and calibration of models is periodically evaluated;

           * The complete and accurate extraction of data regarding accounting estimates from the entity's records or from external information sources;

           * Data, including the complete and accurate flow of data through the entity's information system, the appropriateness of any modification to the data used in making accounting estimates, the maintenance of the integrity and security of the data;

           * When using external information sources, risks related to processing or recording the data;

           * Whether management has controls around access, change and maintenance of individual models to maintain a strong audit trail of the accredited versions of models and to