Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p24
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 72305–75563

related risks, arising from the audit mandate or obligations for public sector entities.

Obtaining an Understanding of the Entity and Its Environment, the Applicable Financial Reporting Framework and the Entity's System of Internal Control (Ref: Para. 19‒27)

Appendices 1 through 6 set out further considerations relating to obtaining an understanding of the entity and its environment, the applicable financial reporting framework and the entity's system of internal control.

Obtaining the Required Understanding (Ref: Para. 19‒27)

A48.         Obtaining an understanding of the entity and its environment, the applicable financial reporting framework and the entity's system of internal control is a dynamic and iterative process of gathering, updating and analysing information and continues throughout the audit.  Therefore, the auditor's expectations may change as new information is obtained.

A49.         The auditor's understanding of the entity and its environment and the applicable financial reporting framework may also assist the auditor in developing initial expectations about the classes of transactions, account balances and disclosures that may be significant classes of transactions, account balances and disclosures.  These expected significant classes of transactions, account balances and disclosures form the basis for the scope of the auditor's understanding of the entity's information system.

Why an Understanding of the Entity and Its Environment, and the Applicable Financial Reporting Framework Is Required (Ref: Para. 19‒20)

A50.         The auditor's understanding of the entity and its environment, and the applicable financial reporting framework, assists the auditor in understanding the events and conditions that are relevant to the entity, and in identifying how inherent risk factors affect the susceptibility of assertions to misstatement in the preparation of the financial report, in accordance with the applicable financial reporting framework, and the degree to which they do so.  Such information establishes a frame of reference within which the auditor identifies and assesses risks of material misstatement.  This frame of reference also assists the auditor in planning the audit and exercising professional judgement and professional scepticism throughout the audit, for example, when:

           * Identifying and assessing risks of material misstatement of the financial report in accordance with ASA 315 or other relevant standards (e.g., relating to risks of fraud in accordance with ASA 240 or when identifying or assessing risks related to accounting estimates in accordance with ASA 540);

           * Performing procedures to help identify instances of non-compliance with laws and regulations that may have a material effect on the financial report in accordance with ASA 250;[27]

           * Evaluating whether the financial report provide adequate disclosures in accordance with ASA 700;[28]

           * Determining materiality or performance materiality in accordance with ASA 320;[29] or

           * Considering the appropriateness of the selection and application of accounting policies, and the adequacy of financial report disclosures.

A51.         The auditor's understanding