Document ID: chunk:federal_register_of_legislation:F2023C01130:body:0:p31
Version: federal_register_of_legislation:F2023C01130
Segment Type: other
Provision Reference: 
Character Range: 92843–96227

the entity's performance or financial position (e.g., a maximum working capital amount).  The auditor's understanding of the performance measures used by the bank may help identify areas where there is increased susceptibility to the risk of material misstatement.

      * For some entities whose nature and circumstances are more complex, such as those operating in the insurance or banking industries, performance or financial position may be measured against regulatory requirements (e.g., regulatory ratio requirements such as capital adequacy and liquidity ratios performance hurdles).  The auditor's understanding of these performance measures may help identify areas where there is increased susceptibility to the risk of material misstatement.

Other considerations

A79.         External parties may also review and analyse the entity's financial performance, in particular for entities where financial information is publicly available.  The auditor may also consider publicly available information to help the auditor further understand the business or identify contradictory information such as information from:

           * Analysts or credit agencies.

           * News and other media, including social media.

           * Taxation authorities.

           * Regulators.

           * Trade unions.

           * Providers of finance.

Such financial information can often be obtained from the entity being audited.

A80.         The measurement and review of financial performance is not the same as the monitoring of the system of internal control (discussed as a component of the system of internal control in paragraphs A114–A122), though their purposes may overlap:

           * The measurement and review of performance is directed at whether business performance is meeting the objectives set by management (or third parties).

           * In contrast, monitoring of the system of internal control is concerned with monitoring the effectiveness of controls including those related to management's measurement and review of financial performance.

In some cases, however, performance indicators also provide information that enables management to identify control deficiencies.

Considerations specific to public sector entities

A81.         In addition to considering relevant measures used by a public sector entity to assess the entity's financial performance, auditors of public sector entities may also consider non-financial information such as achievement of public benefit outcomes (for example, the number of people assisted by a specific program).

The Applicable Financial Reporting Framework (Ref: Para. 19(b))

Understanding the Applicable Financial Reporting Framework and the Entity's Accounting Policies

A82.         Matters that the auditor may consider when obtaining an understanding of the entity's applicable financial reporting framework, and how it applies in the context of the nature and circumstances of the entity and its environment include:

           * The entity's financial reporting practices in terms of the applicable financial reporting framework, such as:

                   + Accounting principles and industry-specific practices, including for industry-specific significant classes of transactions, account balances and related disclosures in the financial report (for example, loans and investments for banks,