96In obtaining this understanding, the auditor ordinarily:

96 In obtaining this understanding, the auditor ordinarily:

(a) considers the procedures used to transfer information from transaction processing systems to the general ledger or financial reporting systems; and

(b) understands the entity’s procedures to capture information relevant to financial reporting for events and conditions other than transactions, such as the depreciation and amortisation of assets and changes in the recoverability of accounts receivable.

97 An entity’s information system typically includes the use of standard journal entries that are required on a recurring basis to record transactions such as sales, purchases, and cash disbursements in the general ledger, or to record accounting estimates that are periodically made by management, such as changes in the estimate of uncollectible accounts receivable.

98 An entity’s financial reporting process also includes the use of non-standard journal entries to record non-recurring, unusual transactions or adjustments. Examples of such entries include consolidating adjustments and entries for a business combination or disposal or non-recurring estimates such as an asset impairment. In manual, paper-based general ledger systems, non-standard journal entries may be identified through inspection of ledgers, journals, and supporting documentation. However, when automated procedures are used to maintain the general ledger and prepare a financial report, such entries may exist only in electronic form and may be more easily identified through the use of computer-assisted audit techniques.

99 Preparation of the entity’s financial report includes procedures that are designed to ensure information required to be disclosed by the applicable financial reporting framework is accumulated, recorded, processed, summarised and appropriately reported in the financial report.

100 In obtaining an understanding, the auditor ordinarily considers risks of material misstatement associated with inappropriate override of controls over journal entries and the controls surrounding non-standard journal entries. For example, automated processes and controls may reduce the risk of inadvertent error but do not overcome the risk that individuals may inappropriately override such automated processes, for example, by changing the amounts being automatically passed to the general ledger or financial reporting system. Furthermore, the auditor ordinarily maintains an awareness that when IT is used to transfer information automatically, there may be little or no visible evidence of such intervention in the information systems.

101 Ordinarily, the auditor understands how the incorrect processing of transactions is resolved, for example, whether there is an automated suspense file and how it is used by the entity to ensure that suspense items are cleared out on a timely basis, and how system overrides or bypasses to controls are processed and accounted for.