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Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement
Examples of Events or Conditions that MaExamples of Events or Conditions that May Give Rise to the Existence of Risks of Material Misstatement
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Examples of Events or Conditions that May Give Rise to the Existence of Risks of Material Misstatement
- The following are examples of events (including transactions) and conditions that may indicate the existence of risks of material misstatement in the financial report, at the financial report level or the assertion level. The examples provided by inherent risk factor cover a broad range of events and conditions; however, not all events and conditions are relevant to every audit engagement and the list of examples is not necessarily complete. The events and conditions have been categorised by the inherent risk factor that may have the greatest effect in the circumstances. Importantly, due to the interrelationships among inherent risk factors, the example events and conditions also are likely to be subject to, or affected by, other inherent risk factors to varying degrees.
| Relevant Inherent Risk Factor: | Examples of Events or Conditions That May Indicate the Existence of Risks of Material Misstatement at the Assertion Level: |
|---|---|
| Complexity | Regulatory:Operations that are subject to a high degree of complex regulation.Business model:The existence of complex alliances and joint ventures.Applicable financial reporting framework:Accounting measurements that involve complex processes.Transactions:Use of off-balance sheet finance, special-purpose entities, and other complex financing arrangements. |
| Subjectivity | Applicable financial reporting framework:A wide range of possible measurement criteria of an accounting estimate. For example, management’s recognition of depreciation or construction income and expenses.Management’s selection of a valuation technique or model for a non-current asset, such as investment properties. |
| Change | Economic conditions:Operations in regions that are economically unstable, for example, countries with significant currency devaluation or highly inflationary economies.Markets:Operations exposed to volatile markets, for example, futures trading.Customer loss:Going concern and liquidity issues including loss of significant customers.Industry model:Changes in the industry in which the entity operates.Business model:Changes in the supply chain.Developing or offering new products or services, or moving into new lines of business.Geography:Expanding into new locations.Entity structure:Changes in the entity such as large acquisitions or reorganisations or other unusual events.Entities or business segments likely to be sold.Human resources competence:Changes in key personnel including departure of key executives.IT:Changes in the IT environment.Installation of significant new IT systems related to financial reporting.Applicable financial reporting framework:Application of new accounting pronouncements.Capital:New constraints on the availability of capital and credit.Regulatory:Inception of investigations into the entity’s operations or financial results by regulatory or government bodies.Impact of new legislation related to environmental protection. |