Document ID: chunk:federal_register_of_legislation:F2022C01152:reg:4:p12
Version: federal_register_of_legislation:F2022C01152
Segment Type: reg
Provision Reference: reg 4 (pt 12/63)
Character Range: 46140–49645

Governance, Management, or Other Relevant Parties

38.               In applying ASA 260[28] and ASA 265,[29] the auditor is required to communicate with those charged with governance or management about certain matters, including significant qualitative aspects of the entity's accounting practices and significant deficiencies in internal control, respectively. In doing so, the auditor shall consider the matters, if any, to communicate regarding accounting estimates and take into account whether the reasons given to the risks of material misstatement relate to estimation uncertainty, or the effects of complexity, subjectivity or other inherent risk factors in making accounting estimates and related disclosures. In addition, in certain circumstances, the auditor is required by law or regulation to communicate about certain matters with other relevant parties, such as regulators or prudential supervisors. (Ref: Para. A146–A148)

Documentation

39.               The auditor shall include in the audit documentation:[30] (Ref: Para. A149–A152)

(a)                Key elements of the auditor's understanding of the entity and its environment, including the entity's internal control related to the entity's accounting estimates;

(b)                The linkage of the auditor's further audit procedures with the assessed risks of material misstatement at the assertion level,[31] taking into account the reasons (whether related to inherent risk or control risk) given to the assessment of those risks;

(c)                The auditor's response(s) when management has not taken appropriate steps to understand and address estimation uncertainty;

(d)                Indicators of possible management bias related to accounting estimates, if any, and the auditor's evaluation of the implications for the audit, as required by paragraph 32; and

(e)                Significant judgements relating to the auditor's determination of whether the accounting estimates and related disclosures are reasonable in the context of the applicable financial reporting framework, or are misstated.

* * *

Application and Other Explanatory Material

Nature of Accounting Estimates (Ref: Para. 2)

Examples of Accounting Estimates

A1.             Examples of accounting estimates related to classes of transactions, account balances and disclosures include:

           * Inventory obsolescence.

           * Depreciation of property and equipment.

           * Valuation of infrastructure assets.

           * Valuation of financial instruments.

           * Outcome of pending litigation.

           * Provision for expected credit losses.

           * Valuation of insurance contract liabilities.

           * Warranty obligations.

           * Employee retirement benefits liabilities.

           * Share‑based payments.

           * Fair value of assets or liabilities acquired in a business combination, including the determination of goodwill and intangible assets.

           * Impairment of long‑lived assets or property or equipment held for disposal.

           * Non‑monetary exchanges of assets or liabilities between independent parties.

           * Revenue recognised for long‑term contracts.

Methods

A2.             A method is a measurement technique used by management to make an accounting estimate in accordance with the required measurement basis. For example, one recognised method used to make accounting estimates relating to share‑based payment transactions is to