Risk Assessment Procedures and Related ARisk Assessment Procedures and Related Activities

Risk Assessment Procedures and Related Activities

1. When obtaining an understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control, as required by ASA 315,[8] the auditor shall obtain an understanding of the following matters related to the entity’s accounting estimates. The auditor’s procedures to obtain the understanding shall be performed to the extent necessary to obtain audit evidence that provides an appropriate basis for the identification and assessment of risks of material misstatement at the financial statement and assertion levels. (Ref: Para. A19–A22)

Obtaining an Understanding of the Entity and Its Environment and the Applicable Financial Reporting Framework

1. The entity’s transactions and other events or conditions that may give rise to the need for, or changes in, accounting estimates to be recognised or disclosed in the financial report. (Ref: Para. A23)
2. The requirements of the applicable financial reporting framework related to accounting estimates (including the recognition criteria, measurement bases, and the related presentation and disclosure requirements); and how they apply in the context of the nature and circumstances of the entity and its environment, including how ,the inherent risk factors affect susceptibility to misstatement of assertions. (Ref: Para. A24–A25)
3. Regulatory factors relevant to the entity’s accounting estimates, including, when applicable, regulatory frameworks related to prudential supervision. (Ref: Para. A26)
4. The nature of the accounting estimates and related disclosures that the auditor expects to be included in the entity’s financial report, based on the auditor’s understanding of the matters in 13(a)–(c) above. (Ref: Para. A27)

Obtaining an Understanding of the Entity’s System of Internal Control

1. The nature and extent of oversight and governance that the entity has in place over management’s financial reporting process relevant to accounting estimates. (Ref: Para. A28–A30).
2. How management identifies the need for, and applies, specialised skills or knowledge related to accounting estimates, including with respect to the use of a management’s expert. (Ref: Para. A31)
3. How the entity’s risk assessment process identifies and addresses risks relating to accounting estimates. (Ref: Para. A32–A33)
4. The entity’s information system as it relates to accounting estimates, including:
   1. How information relating to accounting estimates and related disclosures for significant classes of transactions, account balances or disclosures flows through the entity’s information system; and (Ref: Para. A34–A35)