Section Responding to Risks of Material Misstate - Standard on Sustainability Assurance ASSA 5000 General Requirements for Sustainability Assurance Engagements - Responding to Risks of Material Misstatement | Zoe
Standard on Sustainability Assurance ASSA 5000 General Requirements for Sustainability Assurance Engagements
Responding to Risks of Material MisstateResponding to Risks of Material Misstatement
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126L. The practitioner shall design and perform further procedures whose nature, timing and extent are responsive to the assessed risks of material misstatement, whether due to fraud or error, at the disclosure level. (Ref: Para. A284–A287, A420–A424)
126R. The practitioner shall design and perform further procedures whose nature, timing and extent are responsive to the assessed risks of material misstatement, whether due to fraud or error, at the assertion level for the disclosures. (Ref: Para. A284–A287, A420–A424)
In designing and performing further procedures, the practitioner shall: (Ref: Para. A424–A427)
Consider the reasons for the assessment given to the risks of material misstatement;
Consider whether the practitioner intends to obtain evidence about the operating effectiveness of controls in determining the nature, timing and extent of other procedures; and
Obtain more persuasive evidence the higher the practitioner’s assessment of risk.
Overall Responses
Limited Assurance
Reasonable Assurance
128L. The practitioner shall design and implement overall responses to address the risks of material misstatement if the practitioner identifies: (Ref: Para. A428–A429)Control deficiencies in the control environment that undermine the other components of the system of internal control;Fraud or suspected fraud or non-compliance or suspected non-compliance with laws and regulations; orRisks of material misstatement pervasively throughout the sustainability information.
128R. The practitioner shall design and implement overall responses to address the risks of material misstatement if: (Ref: Para. A428–A429)The practitioner's evaluation of the control environment indicates that:Management, with the oversight of those charged with governance, has not created and maintained a culture of honesty and ethical behaviour;The control environment does not provide an appropriate foundation for the other components of the system of internal control considering the nature and complexity of the entity; orControl deficiencies identified in the control environment undermine the other components of the system of internal control;The practitioner identifies fraud or suspected fraud or non-compliance or suspected non-compliance with laws and regulations; orThe practitioner identifies risks of material misstatement pervasively throughout the sustainability information.
Responding to Identified or Suspected Fraud or Non-Compliance with Laws and Regulations
The practitioner shall respond appropriately to fraud or suspected fraud, or non-compliance or suspected non-compliance with laws and regulations, identified during the engagement by obtaining: (Ref: Para. A430–A431)
An understanding of the nature of the act and the circumstances in which it occurred; and
Further information to evaluate the possible effect on the sustainability information.
If the practitioner suspects there may be instances of fraud or non-compliance with laws and regulations, the practitioner shall discuss the matter, unless prohibited by law or regulation, with the appropriate level of management and, where appropriate, those charged with governance. (Ref: Para. A432)
The practitioner shall evaluate the implications of identified or suspected fraud or non-compliance with laws and regulations for the assurance engagement, including the practitioner’s risk assessment procedures and the reliability of written representations, and take appropriate action. (Ref: Para. A433–A435)
Tests of Controls
If the practitioner intends to obtain evidence about the operating effectiveness of controls identified in accordance with paragraphs 119R or 120L, the practitioner shall design and perform tests of controls by: (Ref: Para. A436–A437)
Performing enquiry and other procedures to obtain evidence about the operating effectiveness of the controls, including:
How the controls were applied at relevant times during the period to which the sustainability information relates;
The consistency with which they were applied; and
By whom or by what means they were applied.
Determining whether the controls to be tested depend upon other controls and, if so, whether it is necessary to obtain evidence supporting the effective operation of those indirect controls.
The practitioner shall test controls for the appropriate period for which the practitioner intends to obtain evidence about the operating effectiveness of those controls, subject to paragraph 134.
If the practitioner obtains evidence about the operating effectiveness of controls during an interim period and intends to extend the conclusions of those tests of controls for the remaining period, the practitioner shall obtain evidence about the operating effectiveness of those controls for the period subsequent to the interim period.
If the practitioner plans to use evidence from a previous sustainability assurance engagement about the operating effectiveness of controls, the practitioner shall establish the continuing relevance of the evidence by obtaining evidence about whether significant changes in those controls have occurred subsequent to the previous engagement. The practitioner shall obtain this evidence by performing enquiry, combined with observation or inspection, to confirm the understanding of those specific controls, and (Ref: Para. A438–A439)
If there have not been changes that affect the continuing relevance of the evidence from the previous engagement, the practitioner shall test the controls at least once in every third engagement, and shall test some controls in each engagement.
If there have been changes that affect the continuing relevance of the evidence from the previous engagement, the practitioner shall test the controls in the current engagement.
If the practitioner plans to obtain evidence about the operating effectiveness of controls over a risk of material misstatement for which the assessment of risk is close to the upper end of the spectrum of risk, the practitioner shall test those controls in the current period.
When evaluating the operating effectiveness of controls, the practitioner shall evaluate whether misstatements detected through performing other procedures indicate that controls are not operating effectively. The absence of misstatements detected by other procedures, however, does not provide evidence that controls being tested are effective.
If deviations from controls that the practitioner tests are detected, the practitioner shall make specific enquiries to understand these matters and their potential consequences and shall determine whether:
The tests of controls that have been performed provide sufficient appropriate evidence about the operating effectiveness of those controls;
Additional tests of controls are necessary; or
The potential risks of material misstatement need to be addressed by performing substantive procedures.
Substantive Procedures
139R. The further procedures required by paragraph 126R shall include substantive procedures that are responsive to each risk for which the assessment of that risk is close to the upper end of the spectrum of risk. (Ref: Para. A407)
140R. Irrespective of the assessed risks of material misstatement, the practitioner shall consider the need to design and perform substantive procedures for disclosures that, in the practitioner’s judgement, are material. (Ref: Para. A440R–A441R)
141R. The practitioner shall consider whether external confirmation procedures are to be performed. (Ref: Para. A442–A443)
If substantive procedures are performed at an interim date and the practitioner intends to extend the conclusions of those substantive procedures for the remaining period, the practitioner shall perform: (Ref: Para. A444–A445)
Substantive procedures, combined with tests of controls for the period subsequent to the interim period; or
If the practitioner determines that it is sufficient, substantive procedures only that provide a reasonable basis for extending the conclusions to the period subsequent to the interim period.
Analytical Procedures
Limited Assurance
Reasonable Assurance
143L. If designing and performing analytical procedures, the practitioner shall: (Ref: Para. A446–A447)Determine the suitability of particular analytical procedures, considering the reasons for the assessment of the risks of material misstatement at the disclosure level; andDevelop an expectation about recorded quantities or ratios. (Ref: Para. A448L)
143R. If designing and performing analytical procedures, the practitioner shall: (Ref: Para. A446–A447)Determine the suitability of particular analytical procedures for given assertions, considering the reasons for the assessment of risks of material misstatement and evidence from other procedures, if any, for these assertions; andDevelop an expectation about recorded quantities or ratios that is sufficiently precise to identify possible material misstatements.
144L. If analytical procedures identify fluctuations or relationships that are inconsistent with other relevant information or that differ significantly from the expected result, the practitioner shall make enquiries of management about such differences. The practitioner shall consider the responses to these enquiries to determine whether additional procedures are necessary in the circumstances.
144R. If analytical procedures identify fluctuations or relationships that are inconsistent with other relevant information or that differ significantly from expected quantities or ratios, the practitioner shall investigate such differences by:Enquiring of management and obtaining additional evidence relevant to management’s responses; andPerforming other procedures as necessary in the circumstances.
Sampling
If the practitioner uses sampling as a means for selecting items for testing, the practitioner shall: (Ref: Para. A449)
Consider the purpose of the procedure and the characteristics of the population from which the sample will be drawn;
Determine a sample size sufficient to reduce sampling risk to an appropriately low level; and
Select the sample, perform procedures on the items selected, and evaluate the results.
Estimates and Forward–Looking Information
Limited Assurance
Reasonable Assurance
146L. In responding to assessed risks of material misstatement relating to disclosures involving estimates or forward-looking information the practitioner shall: (Ref: Para. A450–A452, A454–A455L)Evaluate whether:Management has appropriately applied the requirements of the applicable criteria relevant to estimates or forward-looking information;The methods for developing estimates or forward-looking information are appropriate and have been applied consistently; andChanges, if any, in reported estimates or forward-looking information, or changes from the prior period in the method used for developing estimates or forward-looking information, are appropriate in the circumstances; and (Ref: Para. A459)Consider whether other procedures are necessary in the circumstances.
146R. In responding to assessed risks of material misstatement relating to disclosures involving estimates or forward-looking information, the practitioner shall: (Ref: Para. A450–A452, A454)Evaluate whether management has appropriately applied the requirements of the applicable criteria relevant to estimates or forward-looking information; and (Ref: Para. A453R)Undertake one or more of the following:Test how management developed the estimate or forward-looking information and the related disclosure(s), and the information on which the estimate or forward-looking information is based. In doing so, the practitioner shall evaluate whether:The method has been appropriately selected and applied, and any changes from prior periods are appropriate; (Ref: Para. A456R, A459)The assumptions used, including any changes from prior periods, are appropriate; and (Ref: Para. A457R, A459)The data, including any changes from prior periods, are appropriate; (Ref: Para. A458R, A459)Develop a point estimate or a range to evaluate management’s estimate. For this purpose, the practitioner shall: (Ref: Para. A460R–A462R)Evaluate whether the methods, assumptions or data used are appropriate in the context of the criteria; andWhen the practitioner develops a range:i. Determine that the range includes only amounts that are supported by sufficient evidence and have been evaluated by the practitioner to be reasonable; andii. Design and perform further procedures to obtain sufficient appropriate evidence regarding the assessed risk of material misstatement relating to the disclosures in the sustainability information that describe the uncertainty; orObtain evidence from events occurring up to the date of the practitioner’s report.
Revising the Risk Assessment in a Reasonable Assurance Engagement
147R. If the practitioner becomes aware of a matter or obtains new information that is inconsistent with the evidence on which the practitioner originally based the identification and assessment of the risks of material misstatement at the assertion level for the disclosures, the practitioner shall:
Revise, if necessary, the assessment of the risks of material misstatement; and
Perform additional procedures to obtain further evidence to enable the practitioner to express a reasonable assurance conclusion. (Ref: Para. A463R)
Determining Whether Additional Procedures Are Necessary in a Limited Assurance Engagement
148L. If the practitioner becomes aware of a matter that causes the practitioner to believe the sustainability information may be materially misstated, the practitioner shall design and perform additional procedures to obtain further evidence until the practitioner is able to: (Ref: Para A464L–A467L)
Conclude that the matter(s) is not likely to cause the sustainability information to be materially misstated; or
Determine that the matter(s) causes the sustainability information to be materially misstated.
The Entity’s Process for Assembling the Sustainability Information
Limited Assurance
Reasonable Assurance
149L. The practitioner’s procedures shall include the following procedures related to the entity’s process for assembling the sustainability information: (Ref: Para. A468)Agreeing or reconciling the sustainability information with the underlying records; andObtaining, through enquiry of management, an understanding of material adjustments made during the course of preparing the sustainability information and considering whether additional procedures are necessary in the circumstances.
149R. The practitioner’s procedures shall include the following procedures related to the entity’s process for assembling the sustainability information: (Ref: Para. A468)Agreeing or reconciling the sustainability information with the underlying records; andObtaining evidence about material adjustments made during the course of preparing the sustainability information.
150R. In responding to the risk of management override of controls in accordance with paragraph 123R, the practitioner shall design and perform the following procedures:Test the appropriateness of adjustments made by management in the process for assembling the sustainability information;Make enquiries of individuals involved in the sustainability reporting process about their knowledge of inappropriate or unusual activity relating to adjustments to sustainability information; andDetermine whether other procedures are needed in addition to those in paragraphs (a)–(b) above, in order to respond to the risks of management override of controls. (Ref: Para. A469R)
151L. For group sustainability information, the practitioner shall design and perform further procedures to respond to the assessed risks of material misstatement arising from the aggregation process. Such procedures shall include:Obtaining, through enquiry of management, an understanding of how management has aggregated the information;Determining that all entities have been included in the sustainability information as required by the applicable criteria; andConsidering whether management’s judgements made in the aggregation process give rise to indicators of possible management bias.
151R. For group sustainability information, the practitioner shall design and perform further procedures to respond to the assessed risks of material misstatement arising from the aggregation process. Such procedures shall include:Obtaining an understanding of how management has aggregated the information;Determining that all entities have been included in the sustainability information as required by the applicable criteria; andEvaluating whether management’s judgements made in the aggregation process give rise to indicators of possible management bias.
Documentation
The practitioner shall include in the engagement documentation:
The overall responses in accordance with paragraphs 128L and 128R and the reasons for such responses;
The results of the further procedures, including the conclusions where these are not otherwise clear;
Identified or suspected fraud or non-compliance with laws and regulations and the procedures performed, the significant professional judgements made, and the conclusions reached thereon; and
When applicable, conclusions reached about whether it is appropriate to use evidence about the operating effectiveness of controls obtained in previous engagements.