The following sub‑paragraph 5(d) (including footnotes, 6 and 7) is inserted following existing
sub‑paragraph 5(c):
External information source means an external individual or organisation that provides information that has been used by the entity in preparing the financial report, or that has been obtained by the auditor as audit evidence, when such information is suitable for use by a broad range of users. When information has been provided by an individual or organisation acting in the capacity of a management’s expert, service organisation6, or auditor’s expert7 the individual or organisation is not considered an external information source with respect to that particular information. (Ref: Para. A1‑A4)
6 See ASA 402 Audit Considerations Relating to an Entity Using a Service Organisation, paragraph 8.
7 See ASA 620 Using the Work of an Auditor’s Expert, paragraph 6.
As a result of the insertion of sub paragraph 5(d), subsequent subparagraphs of the paragraph 5 are re‑numbered and references to these paragraphs are updated accordingly.
As a result of the insertion of footnotes 6 and 7, subsequent footnotes of this Auditing Standard are re‑numbered and references to these footnotes are updated accordingly.
Existing paragraph 7 is amended to read as follows:
When designing and performing audit procedures, the auditor shall consider the relevance and reliability of the information to be used as audit evidence., including information obtained from an external information source. (Ref: Para. A26‑A44)
Following the heading Application and Other Explanatory Material, and before the
sub‑heading Sufficient Appropriate Audit Evidence the following sub‑heading is inserted:
External Information Source (Ref: Para. 5(d))
Following the sub‑heading inserted above, the following paragraph A1 is inserted:
External information sources may include pricing services, governmental organisations, central banks or recognised stock exchanges. Examples of information that may be obtained from external information sources include:
Prices and pricing related data;
Macro‑economic data, such as historical and forecast unemployment rates and economic growth rates, or census data;
Credit history data;
Industry specific data, such as an index of reclamation costs for certain extractive industries, or viewership information or ratings used to determine advertising revenue in the entertainment industry; and
Mortality tables used to determine liabilities in the life insurance and superannuation sectors.
Following the paragraph inserted above, the following paragraph A2 is inserted:
A particular set of information is more likely to be suitable for use by a broad range of users and less likely to be subject to influence by any particular user if the external individual or organisation provides it to the public for free, or makes it available to a wide range of users in return for payment of a fee. Judgement may be required in determining whether the information is suitable for use by a broad range of users, taking into account the ability of the entity to influence the external information source.
The following paragraph A3 is inserted following the above insertions:
An external individual or organisation cannot, in respect of any particular set of information, be both an external information source and a management’s expert, or service organisation or auditor’s expert.
The following paragraph A4 (including a footnote 8) is inserted following the above insertions:
However, an external individual or organisation may, for example, be acting as a management’s expert when providing a particular set of information, but may be acting as an external information source when providing a different set of information. In some circumstances, professional judgement may be needed to determine whether an external individual or organisation is acting as an external information source or as a management’s expert with respect to a particular set of information. In other circumstances, the distinction may be clear. For example:
An external individual or organisation may be providing information about real estate prices that is suitable for use by a broad range of users, for example, information made generally available pertaining to a geographical region, and be determined to be an external information source with respect to that set of information. The same external organisation may also be acting as a management’s or auditor’s expert in providing commissioned valuations, with respect to the entity’s real estate portfolio specifically tailored for the entity’s facts and circumstances.
Some actuarial organisations publish mortality tables for general use which, when used by an entity, would generally be considered to be information from an external information source. The same actuarial organisation may also be a management’s expert with respect to different information tailored to the specific circumstances of the entity to help management determine the superannuation liability for several of the entity’s superannuation plans.
An external individual or organisation may possess expertise in the application of models to estimate the fair value of securities for which there is no observable market. If the external individual or organisation applies that expertise in making an estimate specifically for the entity and that work is used by management in preparing its financial report, the external individual or organisation is likely to be a management’s expert with respect to that information. If, on the other hand, that external individual or organisation merely provides, to the public, prices or pricing‑related data regarding private transactions, and the entity uses that information in its own estimation methods, the external individual or organisation is likely to be an external information source with respect to such information.
An external individual or organisation may publish information, suitable for a broad range of users, about risks or conditions in an industry. If used by an entity in preparing its risk disclosures (for example in compliance with AASB 78), such information would ordinarily be considered to be information from an external information source. However, if the same type of information has been specifically commissioned by the entity to use its expertise to develop information about those risks, tailored to the entity’s circumstances, the external individual or organisation is likely to be acting as a management’s expert.
An external individual or organisation may apply its expertise in providing information about current and future market trends, which it makes available to, and is suitable for use by, a broad range of users. If used by the entity to help make decisions about assumptions to be used in making accounting estimates, such information is likely to be considered to be information from an external information source. If the same type of information has been commissioned by the entity to address current and future trends relevant to the entity’s specific facts and circumstances, the external individual or organisation is likely to be acting as a management’s expert.
8 Accounting Standard AASB 7 Financial Instruments: Disclosures
As a result of the insertion of paragraphs A1 to A4, subsequent paragraphs of this Auditing Standard are re‑numbered and references to these paragraphs are updated accordingly.
Existing paragraph A1 is amended to read as follows:
Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit. It may, however, also include information obtained from other sources such as previous audits (provided the auditor has determined whether changes have occurred since the previous audit that may affect its relevance to the current audit)6 or a firm’s quality control procedures for client acceptance and continuance. In addition to other sources inside and outside the entity, the entity’s accounting records and other sources internal to the entity are important sources of audit evidence. Also, iInformation that may be used as audit evidence may have been prepared using the work of a management’s expert. or be obtained from an external information source. Audit evidence comprises both information that supports and corroborates management’s assertions, and any information that contradicts such assertions. In addition, in some cases the absence of information (for example, management’s refusal to provide a requested representation) is used by the auditor, and therefore, also constitutes audit evidence.
Existing paragraph A9 is amended to read as follows:
Information from sources independent of the entity that the auditor may use as audit evidence may include confirmations from third parties, and information from an external information source, including analysts’ reports, and comparable data about competitors (benchmarking data).
Existing paragraph A31 is amended to read as follows:
The reliability of information to be used as audit evidence, and therefore of the audit evidence itself, is influenced by its source and its nature, and the circumstances under which it is obtained, including the controls over its preparation and maintenance where relevant. Therefore, generalisations about the reliability of various kinds of audit evidence are subject to important exceptions. Even when information to be used as audit evidence is obtained from sources external to the entity, circumstances may exist that could affect its reliability. For example, information obtained from an source independent external source of the entity may not be reliable if the source is not knowledgeable, or a management’s expert may lack objectivity. While recognising that exceptions may exist, the following generalisations about the reliability of audit evidence may be useful:
…
…
Following existing paragraph A34 the following sub‑heading is inserted:
External Information Sources
The following paragraph A39 (including a footnote 19) is inserted following the above sub‑heading:
The auditor is required by paragraph 7 to consider the relevance and reliability of information obtained from an external information source that is to be used as audit evidence, regardless of whether that information has been used by the entity in preparing the financial report or obtained by the auditor. For information obtained from an external information source, that consideration may, in certain cases, include audit evidence about the external information source or the preparation of the information by the external information source, obtained through designing and performing further audit procedures in accordance with ASA 330 or, where applicable, ASA 540.19
19 See ASA 540 Auditing Accounting Estimates and Related Disclosures
The following paragraph A40 is inserted following the above insertion:
Obtaining an understanding of why management or, when applicable, a management’s expert uses an external information source, and how the relevance and reliability of the information was considered (including its accuracy and completeness), may help to inform the auditor's consideration of the relevance and reliability of that information.
The following paragraph A41 is inserted following the above insertions:
The following factors may be important when considering the relevance and reliability of information obtained from an external information source, including its accuracy and completeness, taking into account that some of these factors may only be relevant when the information has been used by management in preparing the financial report or has been obtained by the auditor:
The nature and authority of the external information source. For example, a central bank or government statistics office with a legislative mandate to provide industry information to the public is likely to be an authority for certain types of information;
The ability to influence the information obtained, through relationships between the entity and the information source;
The competence and reputation of the external information source with respect to the information, including whether, in the auditor’s professional judgement, the information is routinely provided by a source with a track record of providing reliable information;
Past experience of the auditor with the reliability of the information provided by the external information source;
Evidence of general market acceptance by users of the relevance and/or reliability of information from an external information source for a similar purpose to that for which the information has been used by management or the auditor;
Whether the entity has in place controls to address the relevance and reliability of the information obtained and used;
Whether the external information source accumulates overall market information or engages directly in “setting” market transactions;
Whether the information is suitable for use in the manner in which it is being used and, if applicable, was developed taking into account the applicable financial reporting framework;
Alternative information that may contradict the information used;
The nature and extent of disclaimers or other restrictive language relating to the information obtained;
Information about the methods used in preparing the information, how the methods are being applied including, where applicable, how models have been used in such application, and the controls over the methods; and
When available, information relevant to considering the appropriateness of assumptions and other data applied by the external information sources in developing the information obtained.
The following paragraph A42 (including footnotes, 20 and 21) is inserted following the above insertions:
The nature and extent of the auditor’s consideration takes into account the assessed risks of material misstatement at the assertion level to which the use of the external information is relevant, the degree to which the use of that information is relevant to the reasons for the assessed risks of material misstatement and the possibility that the information from the external information source may not be reliable (for example, whether it is from a credible source). Based on the auditor’s consideration of the matters described in paragraph A39, the auditor may determine that further understanding of the entity and its environment, including its internal control, is needed, in accordance with ASA 315, or that further audit procedures, in accordance with ASA 33020, and ASA 54021 when applicable, are appropriate in the circumstances, to respond to the assessed risks of material misstatement related to the use of information from an external information source. Such procedures may include:
Performing a comparison of information obtained from the external information source with information obtained from an alternative independent information source.
When relevant to considering management’s use of an external information source, obtaining an understanding of controls management has in place to consider the reliability of the information from external information sources, and potentially testing the operating effectiveness of such controls.
Performing procedures to obtain information from the external information source to understand its processes, techniques, and assumptions, for the purposes of identifying, understanding and, when relevant, testing the operating effectiveness of its controls.
20 See ASA 330, paragraph 6.
21 See ASA 540, paragraph 30.
The following paragraph A43 is inserted following the above insertions:
In some situations, there may be only one provider of certain information, for example, information from a central bank or government, such as an inflation rate, or a single recognised industry body. In such cases, the auditor’s determination of the nature and extent of audit procedures that may be appropriate in the circumstances is influenced by the nature and credibility of the source of the information, the assessed risks of material misstatement to which that external information is relevant, and the degree to which the use of that information is relevant to the reasons for the assessed risk of material misstatement. For example, when the information is from a credible authoritative source, the extent of the auditor’s further audit procedures may be less extensive, such as corroborating the information to the source’s website or published information. In other cases, if a source is not assessed as credible, the auditor may determine that more extensive procedures are appropriate and, in the absence of any alternative independent information source against which to compare, may consider whether performing procedures to obtain information from the external information source, when practical, is appropriate in order to obtain sufficient appropriate audit evidence.
The following paragraph A44 (including a footnote 22) is inserted following the above insertions:
When the auditor does not have a sufficient basis with which to consider the relevance and reliability of information from an external information source, the auditor may have a limitation on scope if sufficient appropriate audit evidence cannot be obtained through alternative procedures. Any imposed limitation on scope is evaluated in accordance with the requirements of ASA 705.22
22 See ASA 705 Modifications to the Opinion in the Independent Auditor’s Report, paragraph 13.
As a result of the insertion of paragraphs A39 to A44, subsequent paragraphs of this Auditing Standard are re‑numbered and references to these paragraphs are updated accordingly.
As a result of the insertion of footnotes 19 to 22, subsequent footnotes of this Auditing Standard are re‑numbered and references to these footnotes are updated accordingly.
Existing paragraph A36 is amended to read as follows:
When information to be used as audit evidence has been prepared using the work of a management’s expert, the requirement in paragraph 8 applies. For example, an individual or organisation may possess expertise in the application of models to estimate the fair value of securities for which there is no observable market. If the individual or organisation applies that expertise in making an estimate which the entity uses in preparing its financial report, the individual or organisation is a management’s expert and paragraph 8 applies. If, on the other hand, that individual or organisation merely provides price data regarding private transactions not otherwise available to the entity which the entity uses in its own estimation methods, such information, if used as audit evidence, is subject to paragraph 7 of this Auditing Standard, but is being information from an external information source and not the use of a management’s expert by the entity.
Existing footnote 16 to paragraph A45 of this Auditing Standard is amended to read as follows:
See ASA 620 Using the Work of an Auditor’s Expert, paragraph 7.
Existing paragraph A49 of this Auditing Standard is amended to read as follows:
Considerations when evaluating the appropriateness of the management’s expert’s work as audit evidence for the relevant assertion may include:
The relevance and reasonableness of that expert’s findings or conclusions, their consistency with other audit evidence, and whether they have been appropriately reflected in the financial report;
If that expert’s work involves use of significant assumptions and methods, the relevance and reasonableness of those assumptions and methods; and
If that expert’s work involves significant use of source data, the relevance, completeness, and accuracy of that source data.; and
If that expert’s work involves the use of information from an external information source, the relevance and reliability of that information.