Document ID: chunk:federal_register_of_legislation:F2016C00028:reg:26:p35
Version: federal_register_of_legislation:F2016C00028
Segment Type: reg
Provision Reference: reg 26 (pt 35/47)
Character Range: 108739–111837

relate pervasively to the financial report as a whole and potentially affect many assertions.  Risks of this nature are not necessarily risks identifiable with specific assertions at the class of transactions, account balance, or disclosure level.  Rather, they represent circumstances that may increase the risks of material misstatement at the assertion level, for example, through management override of internal control.  Financial report level risks may be especially relevant to the auditor's consideration of the risks of material misstatement arising from fraud.

A123.      Risks at the financial report level may derive in particular from a deficient control environment (although these risks may also relate to other factors, such as declining economic conditions).  For example, deficiencies such as a lack of management competence or lack of oversight over the preparation of the financial report may have a more pervasive effect on the financial report and may require an overall response by the auditor.

A124.      The auditor's understanding of internal control may raise doubts about the auditability of an entity's financial report.  For example:

           * Concerns about the integrity of the entity's management may be so serious as to cause the auditor to conclude that the risk of management misrepresentation in the financial report is such that an audit cannot be conducted.

           * Concerns about the condition and reliability of an entity's records may cause the auditor to conclude that it is unlikely that sufficient appropriate audit evidence will be available to support an unqualified opinion on the financial report.

A125.      ASA 705[16] establishes requirements and provides guidance in determining whether there is a need for the auditor to express a qualified opinion or disclaim an opinion or, as may be required in some cases, to withdraw from the engagement where withdrawal is possible under applicable law or regulation.

Assessment of Risks of Material Misstatement at the Assertion Level (Ref: Para. 25(b))

A126.      Risks of material misstatement at the assertion level for classes of transactions, account balances, and disclosures need to be considered because such consideration directly assists in determining the nature, timing, and extent of further audit procedures at the assertion level necessary to obtain sufficient appropriate audit evidence.  In identifying and assessing risks of material misstatement at the assertion level, the auditor may conclude that the identified risks relate more pervasively to the financial report as a whole and potentially affect many assertions.

The Use of Assertions

A127.      In representing that the financial report is in accordance with the applicable financial reporting framework, and other statutory reporting requirements, management or where appropriate those charged with governance implicitly or explicitly makes assertions regarding the recognition, measurement and presentation of classes of transactions and events, account balances and disclosures.

Assertions about classes of