Document ID: chunk:federal_register_of_legislation:F2023C01132:reg:23:p3
Version: federal_register_of_legislation:F2023C01132
Segment Type: reg
Provision Reference: reg 23 (pt 3/23)
Character Range: 13982–17391

able to conclude whether the financial report, insofar as it is affected by those relationships and transactions:  (Ref: Para. A1)

(a)                Achieves fair presentation (for fair presentation frameworks); or  (Ref: Para. A2)

(b)                Is not misleading (for compliance frameworks).  (Ref: Para. A3)

5.                   In addition, an understanding of the entity's related party relationships and transactions is relevant to the auditor's evaluation of whether one or more fraud risk factors are present as required by ASA 240,[4] because fraud may be more easily committed through related parties.

6.                   Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial report may not be detected, even though the audit is properly planned and performed in accordance with the Australian Auditing Standards.[5]  In the context of related parties, the potential effects of inherent limitations on the auditor's ability to detect material misstatements are greater for such reasons as the following:

           * Management may be unaware of the existence of all related party relationships and transactions, particularly if the applicable financial reporting framework does not establish related party requirements.

           * Related party relationships may present a greater opportunity for collusion, concealment or manipulation by management.

7.                   Planning and performing the audit with professional scepticism as required by ASA 200[6] is therefore particularly important in this context, given the potential for undisclosed related party relationships and transactions.  The requirements in this Auditing Standard are designed to assist the auditor in identifying and assessing the risks of material misstatement associated with related party relationships and transactions, and in designing audit procedures to respond to the assessed risks.

Effective Date

8.                   [Deleted by the AUASB.  Refer Aus 0.3]

Objectives

9.                   The objectives of the auditor are:

(a)                Irrespective of whether the applicable financial reporting framework establishes related party requirements, to obtain an understanding of related party relationships and transactions sufficient to be able:

(i)                 To recognise fraud risk factors, if any, arising from related party relationships and transactions that are relevant to the identification and assessment of the risks of material misstatement due to fraud; and

(ii)               To conclude, based on the audit evidence obtained, whether the financial report, insofar as it is affected by those relationships and transactions:

                 a. Achieves fair presentation (for fair presentation frameworks); or

                 b. Are not misleading (for compliance frameworks); and

(b)                In addition, where the applicable financial reporting framework establishes related party requirements, to obtain sufficient appropriate audit evidence about whether related party relationships and transactions have been appropriately identified, accounted for and disclosed in the financial report in accordance with the framework.

Definitions

10.               For the purposes of this Auditing Standard, the following terms have the meanings attributed below:

(a)                Arm's