Document ID: chunk:federal_register_of_legislation:F2025C00096:body:0:p43
Version: federal_register_of_legislation:F2025C00096
Segment Type: other
Provision Reference: 
Character Range: 123141–126394

and the nature of the activities undertaken, may help to identify and assess risks of material misstatement and appropriately respond to such risks.  For example, controls at a shared service centre may operate independently from other controls, or they may be dependent upon controls at an entity or business unit from which financial information is derived (e.g., sales transactions may be initiated and authorised at an entity or business unit, but the processing may occur at the shared service centre).

 3.       The group auditor may involve component auditors in testing the operating effectiveness of common controls or controls related to centralised activities.  In such circumstances, effective collaboration between the group auditor and component auditors is important as the audit evidence obtained through testing the operating effectiveness of common controls or controls related to centralised activities supports the determination of the nature, timing and extent of substantive procedures to be performed across the group.

Communications About Significant Matters that Support the Preparation of the Group Financial Report (Ref: Para. 30(c)(iv))

 1.       Group entities or business units may use a financial reporting framework for statutory, regulatory or other reasons that is different from the financial reporting framework used for the group's financial report.  In such circumstances, an understanding of group management's financial reporting processes to align accounting policies and, when relevant, financial reporting period-ends that differ from that of the group, enables the group auditor to understand how adjustments, reconciliations and reclassifications are made, and whether they are made centrally by group management or by the entity or business unit.

Instructions by group management to entities or business units

 1.       In applying ASA 315,[74] the group auditor is required to understand how group management communicates significant matters that support the preparation of the group financial report.  To achieve uniformity and comparability of financial information, group management may issue instructions (e.g., communicate financial reporting policies) to the entities or business units that include details about financial reporting processes or may have policies that are common across the group.  Obtaining an understanding of group management's instructions may affect the identification and assessment of the risks of material misstatement of the group financial report.  For example, inadequate instructions may increase the likelihood of misstatements due to the risk that transactions are incorrectly recorded or processed, or that accounting policies are incorrectly applied.

 2.       The group auditor's understanding of the instructions or policies may include the following:

           * The clarity and practicality of the instructions for completing the reporting package.

           * Whether the instructions:

                   + Adequately describe the characteristics of the applicable financial reporting framework and the accounting policies to be applied;

                   + Address information necessary to prepare disclosures that are sufficient to comply with the