---
base_model: BAAI/bge-base-en-v1.5
language:
- en
library_name: sentence-transformers
license: apache-2.0
pipeline_tag: sentence-similarity
tags:
- sentence-transformers
- sentence-similarity
- feature-extraction
- generated_from_trainer
- dataset_size:27
- loss:MatryoshkaLoss
- loss:MultipleNegativesRankingLoss
widget:
- source_sentence: '['' # TAX: Taxes\n ## 8 Summary of audit differences and summary
of control deficiencies\n Our Guide to auditing income taxes (SCORE No. 05990-171US)
is designed to be used by audit and tax professionals as the primary source
of audit guidance for planning and performing audit procedures for income tax
accounts in audits conducted in accordance with AICPA or PCAOB standards. ### 8.1
Summary of audit differences\n When audit or tax professionals identify any factual
or judgmental misstatements, we bring the misstatement to the attention of the
partner in charge of the audit to determine the appropriate course of action.
We discuss misstatements with management, regardless of size, and whether resulting
in an overstatement or understatement of a tax account. Audit professionals include
all misstatements relating to tax accounts above our SAD nominal amount on the
summary of audit differences where we evaluate and conclude on them, individually
and in the aggregate with other misstatements. When we identify misstatements
below the SAD nominal amount, or encounter issues that may adversely affect the
entity or are indicative of control deficiencies we bring the issue to the attention
of the partner in charge of the audit. We do not expand procedures to search for
such situations or other matters that involve lesser amounts without prior discussion
with the partner in charge of the audit. Refer to MISSTATE. ### 8.2 Summary
of control deficiencies\n When audit or tax professionals identify one or more
control deficiencies in tax accounts, we determine, on the basis of the audit
procedures performed, whether individually or in combination, they constitute
a significant deficiency (or material weakness if required to be communicated
in the jurisdiction) in internal control. We consider the effect of control deficiencies
identified on our combined risk assessment and the nature, timing and extent of
audit procedures performed. Refer to SOCD.'', ''# HIGHER RISK: Responding to
a ‘higher’ risk audit designation from the acceptance and continuance process\n'',
'' # SAMPLE: 4 Sampling for tests of details\n ## 4.5 Determine sample size\n ### 4.5.3
Statistical techniques for determining sample size\n As described in SAMPLE
2.3, we choose from the following statistical techniques in determining our representative
sample size: Monetary unit sampling (MUS) ( SAMPLE 4.5.3a) Random sampling
( SAMPLE 4.5.3b) Discovery sampling ( SAMPLE 4.5.3c) Variables estimation sampling
( SAMPLE 4.5.3d) #### 4.5.3a Monetary unit sampling\n MUS assists in selecting
sampling units proportional to their size in the population and to express a conclusion
as a monetary value rather than as a rate of occurrence. It is an appropriate
sampling technique for tests of details when we wish to draw a conclusion about
the total monetary misstatement within an account balance. MUS is often used for
testing asset accounts when our primary audit concern is with overstatement. However,
MUS can be used for liability accounts when our primary concern is with understatement
under certain circumstances. With MUS, the approach to testing the understatement
of a population is to test a complement population for overstatement. MUS is
not appropriate in situations when we expect a high number of errors. To help
us determine our sample sizes using MUS, we use our audit sampling tool which
applies the EY audit risk tables (ARTs), refer to SAMPLE Appendix 1. For additional
guidance on MUS refer to SAMPLE 2.3.1. #### 4.5.3b Random sampling technique\n Random
sampling is a sampling technique whereby each item in the population is given
an equal or known chance of selection regardless of size. Like MUS, a random sampling
technique is not appropriate in situations when we expect a high number of errors
and is often used for testing asset accounts when our primary audit concern is
with overstatement. However, a random sampling technique can be used for liability
accounts when our primary concern is with understatement in certain circumstances.
As with MUS, the approach to testing the understatement of a population with a
random sampling technique is to test a related population for overstatement. To
help in calculating our sample sizes using random sampling we use the ARTs, refer
to SAMPLE Appendix 1 Audit risk tables. We use our audit sampling tool to apply
the ARTs when using random sampling. For additional guidance on random sampling
technique refer to SAMPLE 2.3.2.'', ''# GROUP FRAUD: Fraud risks and responses\n ## 1
Obtain information to identify risks of fraud\n ### 1.3 Inquiries\n The Primary
Team obtains information to identify risks of material misstatement of the group
financial statements through inquiries at group level). In addition
to the required procedures in FRAUD-RISK 3.2, the Primary Team makes inquiries
of group management about: EY Policy The nature and extent of monitoring of
components or business segments Whether there are particular components or business
segments for which a risk of material misstatement of the group financial statements
due to fraud may be more likely to exist The Primary Team considers
whether to make additional inquiries at the component level, particularly when
the risk of fraud is heightened. If so, the Primary Team communicates to the component
team the relevant inquiries to be made by the component team. Delays in the finalization
of local statutory financial statements may be an indication that issues exist
within the components’ accounting processes, including the FSCP, which may give
rise to heightened risk of fraud.\xa0 When EY performs the statutory audits of
the components within the group, the Primary Team usually has an understanding
of the status of statutory reporting across the group. When the Primary Team determines
that it does not have a clear understanding of the status of statutory reporting
across the group (e.g., when non-EY auditors are also providing statutory audit
opinions), it may be helpful for the Primary Team to inquire of group management
regarding the monitoring processes for statutory audit opinions and discuss whether
any of the audit opinions contain a modification or a material uncertainty relating
to going concern, which may give rise to a risk of material misstatement due to
fraud or error.\xa0 In addition, the Primary Team may also inquire as to whether
any delays are expected on any current period local statutory audits. Issuing
an adverse audit opinion or delays in finalizing the statutory audit may be an
indicator of a risk of material misstatement due to fraud and therefore we investigate
as appropriate.\nWhen the data is obtained centrally for the group, the Primary
Team uses the results of risk assessment analytical procedures using automated
techniques to make inquiries of group management based on the information observed
performing these procedures. Refer to FRAUD-RISK 3.2 for examples.\nIn a full
scope engagement, refer to FRAUD-RISK 3.2. For specific scope engagements, the
Primary Team uses professional judgment to determine if inquiries regarding fraud
are to be made by the component team. The Primary Team considers if those inquiries
are appropriate in relation to the nature and extent of work that has been assigned
to the component team.'', '' # Going concern (last updated 01 November 2022)\n ##
What procedures should a component team perform to determine whether it can rely
on a letter of support for its statutory audit to mitigate events or conditions
that may raise substantial doubt about the component entity’s ability to continue
as a going concern and what are the implications for the Primary Team? [01 November
2022]\n When a component team issues an audit opinion on the component’s financial
statements and has identified events or conditions that may cast significant doubt
about the component entity’s ability to continue as a going concern, the component
team obtains additional information from management about the parent company’s
intention and ability to support the component, including the measures that group
management will implement. EY GAM GROUP GOING CONCERN. When component management
has obtained a letter of support from the parent company (or another entity within
the group) confirming support of the component, the component team works closely
with the Primary Team, or when this is not possible, with group management, to
confirm the group’s ability and intent to support the component. A crisis event
may impact multiple components within the group and the group as a whole. Therefore,
when the Primary Team works with a component team to assess whether the group
has the ability to support the component, it considers collectively all components
within the group. The Primary Team considers the number and potential aggregate
exposure of the components for which letters of support have been issued. If each
component were to call on the group to honor the letter of support, does the group
have the capacity to meet them all? The extent of the procedures needed to obtain
sufficient evidence over the existence, legality and enforceability of the arrangement
to provide or maintain financial support and to assess whether the group has the
financial ability to provide the support will depend on the particular circumstances.
EY GAM GOING CONCERN Appendix 2 for guidance on the types of procedures we may
perform to obtain sufficient evidence. When the component team (with the support
of the Primary Team) is not able to obtain sufficient evidence regarding the support
of group management, the component team (with the support of the Primary Team)
determines whether substantial doubt exists about the component’s ability to continue
as a going concern. Any form of limitation or conditionality on the support has
a high likelihood of resulting in substantial doubt about the component’s ability
to continue as a going concern – in the same way as such limitations would if
they came from a lending institution. Such limitations or conditions include the
common commitment to let the recipient know if the parent was unable to continue
the support and any references to “current intentions” of the parent. When a
going concern uncertainty paragraph is included in the auditor’s report at the
group level or a qualified or adverse opinion is expressed due to going concern
issue, respective modification should be included in auditor’s reports on all
components’ financial statements. In the US, discussion with a Professional Practice
partner assigned to the Region may be appropriate for the wording of the auditor’s
report on the components’ financial statements. It’s important to note that we
are required to consult with a Professional Practice partner assigned to the Region
when we consider not to carry through to the subsidiary report a consolidated
entity’s going concern modifier. When a letter of support is in place, we also
determine the adequacy of related disclosures. Note that component teams also
give specific consideration to local requirements when assessing whether reliance
can be placed on the letter of support.'', '' # Going concern (last updated 01
November 2022)\n ## What is the Primary Team’s responsibility when it becomes
aware of confidential information that will significantly (or adversely) affect
a component but group management refuses to inform component management of these
significant decisions made at the group level? [01 November 2022]\n The Primary
Team may be made aware by group management of decisions that may significantly
(or adversely) affect a component in the group (e.g., by intending to restructure
the group’s activities and/or liquidate a component) for which we are also issuing
a statutory audit opinion on the component’s financial statements. In the circumstances
when group management refuses to communicate this key decision to component management,
the Primary Team communicates the matter with those charged with governance of
the group in accordance with EY GAM GROUP COMMS 2. If the matter remains unresolved,
the Primary Team is required to consult with a Professional Practice partner assigned
to the Region to determine whether to advise the component team not to issue the
auditors’ report on the financial statements of the component until the matter
is resolved. When the component team is only engaged to perform audit procedures
in relation to the group audit (i.e., the component team only issues an interoffice
conclusion to the Primary Team), the Primary Team works with group management
to understand the effect this key decision may have on the group audit opinion
and updates its documentation accordingly. In all cases, the Primary Team also
considers updating the group representation letter to reflect matters not communicated
to component management.'', '' # SAMPLE: 4 Sampling for tests of details\n ## 4.8
Evaluate and conclude on the sample results\n ### 4.8.3 Calculate the projected
representative misstatement\n #### 4.8.3a Ratio projection method\n The ratio
projection method projects the ratio of monetary misstatement in the sample to
the book value of the entire sampled population. In other words, it applies the
relative amount of monetary misstatement (understatement or overstatement) observed
in the sample to the population. The ratio projection method does not require
an estimate of the number of sampling units in a population, unlike the difference
method (refer to SAMPLE 4.8.3b). #### 4.8.3b Difference method\n The difference
method projects the average monetary difference between the audited and the recorded
amounts of each item in the sample to all items in the sampled population. '',
''# CLOSE MONITOR: Responding to a “Close monitoring” audit designation from the
acceptance and continuance process\n'', '' # GOING CONCERN REPORTING – Reporting
on going concern uncertainty [effective for AICPA audits of periods ending on
or after 15 December 2021]\n ## 6 Relationship of going concern reporting to
key audit matters\n Our responsibility to communicate key audit matters in the
auditor’s report is dealt with in KAM. When we communicate key audit matters, KAM
2.2.1 explains that although a matter giving rise to a modified opinion or a matter
resulting from substantial doubt about an entity’s ability to continue as a going
concern are reported separately in the auditor’s report, these matters are by
their nature key audit matters (and are referenced within the Key Audit Matters
section of the auditor’s report (refer to KAM 2.4.1)). This would apply when
we determine disclosures related to going concern are inadequate and we conclude
that it is necessary to modify our auditor’s opinion. In\xa0accordance with KAM
2.4.1, the substantial doubt over an entity’s ability to continue as a going concern
is not reported in the Key audit matter section (and is reported in the Going
Concern section of the auditor’s report in accordance with GOING CONCERN REPORTING
4.1). However, the substantial doubt about the entity’s ability to continue as
a going concern is referred to in the introductory language of the Key audit
matters section of our auditor’s report. Contrary to the above circumstances,
it is possible to identify a key audit matter related to going concern, which
would be reported in the Key audit matters section, when: We identify events
and conditions and Conclude that no substantial doubt about an entity’s ability
to continue as a going concern exists and Conclude that the disclosures related
to those events or conditions are adequate As key audit matters are defined as
matters of most significance in our audit, a matter related to going concern (when
substantial doubt about an entity’s ability to continue as a going concern does
not exist) may constitute a key audit matter, for example, when the determination
that substantial doubt about an entity’s ability to continue as a going concern
does not exist was a “close call” or the assessment of the entity’s ability to
continue as a going concern required significant audit effort. We are
required to consult with a Professional Practice partner assigned to the Region
when we identify an issue related to going concern as a KAM to be communicated,
but have concluded substantial doubt over the entity’s ability to continue as
a going concern does not exist. EY Policy ( KAM 1.3)'', '' # US A&A News — 15
July 2021\n ## Audit and other internal-only matters\n ### Audit partners are
encouraged to complete PCAOB survey on CAMs requirements\n The EY organization
has agreed to support research by the PCAOB on the overall impact of the requirement
for auditors to report on critical audit matters (CAMs), and partners on audits
for which we have reported on CAMs are encouraged to complete this PCAOB\xa0survey.
The survey should take no more than 20\xa0minutes to complete and will remain
open through 30\xa0July 2021. The PCAOB had a similar survey in 2020 as part of
its interim analysis. Responses will not be linked to any personal information
and will not be reported at the individual or firm level in any publication from
this study. ### New FAQs for supporting UK component teams’ going concern assessments\n New frequently
asked questions (FAQs) are available to help US\xa0Primary Teams support UK component
teams in determining whether there is substantial doubt about a UK entity’s ability
to continue as a going concern. The FAQs focus on the following: What to expect
under the UK auditing standard on going concern assessments Procedures that the
UK component team may request that the US Primary Team performs The level of audit
documentation that may be provided by the US Primary Team An example of a UK support
letter These FAQs compliment revisions to GOING CONCERN-US that were announced
in the Special Edition A&A\xa0News of 13\xa0July 2021. ### Updated EY centralized
pricing service analysis memorandum\n The EY centralized pricing service analysis
memorandum that summarizes the procedures Ernst\xa0& Young\xa0LLP (the US\xa0Firm)
has performed through June 2021 to support our conclusions about whether we can
use pricing information provided by certain pricing services as audit evidence
has been updated. The procedures address aspects of certain requirements in AS_6.6
Auditing investments, including alternative investments and reflect monthly inquiries
of the pricing vendors. The US Firm performed the centralized procedures for the
following vendors: ICE Data Pricing & Reference Data, LLC (ICE) Thomson Reuters
Pricing Service (Refinitiv) Markit Group, Ltd. (IHS Markit) Bloomberg Valuation
Service System (Bloomberg or BVAL) PricingDirect Inc. (JP Morgan Pricing Direct)
Merrill Lynch Valuations, LLC (PriceServe) The memorandum summarizes procedures
performed by the US Firm to address the following requirements in AS_6.6: We
evaluate the reliability of pricing information that we use as audit evidence. [PCAOB
audits only] For lower estimation uncertainty classes of fixed income investments,
we evaluate the valuation process used by the pricing service from which we obtain
pricing information that we use as audit evidence. [PCAOB audits only] For exchange-traded
investments, we evaluate whether the pricing source obtains the prices from original
sources. We use this memorandum to support our conclusions by either retaining
it in EY\xa0Canvas or referring to it in our workpapers. '']'
sentences:
- Sampling risk to be considered as some in which situations
- is the primary audit concern overstatement?
- What are IPE's. Does information from a third party expert comes under IPE risk
- source_sentence: '[''# 8-11 Update and evaluate controls\n ## 10 Evaluate deficiencies
in internal control\n We determine whether, on the basis of the
audit work performed, we have identified one or more deficiencies in internal
control. ISA 265.7, AICPA AU-C 265.08 If we conclude that a control
is not operating effectively and a control deficiency exists, we evaluate it to
determine if it constitutes a significant deficiency (or material weakness if
required to be communicated in the jurisdiction) that we need to communicate to
management and those charged with governance. Refer to SOCD\xa01. We may identify
deficiencies in: Design, when we confirm our understanding of controls through
performing walkthrough procedures Operation, as we execute our tests of controls A
deficiency in design exists when either: A control necessary to address a WCGW
or IT risk is missing An existing control is inappropriately designed so that,
even if it operates as designed, its objective will not be met (e.g., it will
not prevent a misstatement occurring on a timely basis) A deficiency in operation
exists when either: An appropriately designed control does not operate as intended The
person performing the control does not possess the necessary authority, capabilities,
competence or objectivity to do it effectively Generally, control exceptions indicate
a deficiency in internal control, except in the following limited situations: Upon
further evaluation, we determine it was not a deviation from the intended functioning
of the control (i.e., we misinterpreted the exception) We obtain sufficient appropriate
audit evidence by performing additional procedures, beyond inquiry, to conclude
that the rate of exception in the functioning of the control is acceptable based
on our understanding of its design (e.g., we extend the sample size for a random
control exception, refer to CONTROLS\xa08.2a) \nFor integrated audits,
in the limited circumstances when we conclude that a control exception is not
considered a deficiency, we generally perform additional testing to conclude that
the control is operating effectively, or the rate of exception is acceptable. PCAOB
AS 2201.48\n\nFor integrated audits, we consider accumulating control
exceptions determined not to be control deficiencies to facilitate audit executive
review and determine that we adequately evaluated and documented each control
exception. Such accumulation may include the control description, related SCOT,
business unit/location, description of the exception and explanation why it is
not a control deficiency. We include exceptions that we identified from our independent
tests of controls, or from testing performed by management, internal audit or
others.\nThe existence of effective compensating controls does not remove a control
deficiency.'', '' # SOCD : Evaluate control deficiencies\n ## Purpose\n We evaluate
control deficiencies identified through our audit procedures to determine if they
constitute a significant deficiency. We evaluate both identified deficiencies
in the design of controls and in the operation of controls. Design deficiencies
include those that are identified related to the appropriateness of the entity’s
policies in each of the components of the system of internal control (refer to ELC
[ Pre Dec 2022: ELC] and FSCP 6). In some jurisdictions, for example when reporting
as an integrated audit under PCAOB standards, we also determine whether the control
deficiency is a material weakness. Throughout EY GAM, we discuss identifying significant
deficiencies and use the phrase “or material weakness if required to be communicated
in the jurisdiction” to address these situations. We refer to local requirements
when determining whether a control deficiency is a material weakness. We communicate
significant deficiencies to management and those charged with governance, and
when applicable in the jurisdiction, we communicate separately material weaknesses.
For guidance on determining whether we have identified a control exception and
whether it is a deficiency refer to CONTROLS 8 and CONTROLS 10. This topic provides
requirements and guidance to determine whether a control deficiency constitutes
a significant deficiency (or material weakness if required to be communicated
in the jurisdiction).'', ''# SOCD : Evaluate control deficiencies\n ## 1 Significant
deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)\n ####
1.1 Indicators of a material weakness\n In addition to the quantitative and qualitative
factors discussed in SOCD 1, we consider indicators of material weaknesses in
internal control when evaluating whether a control deficiency is a material weakness. Indicators
of material weaknesses in internal control include: Identification of fraud,
whether or not material, on the part of senior management Restatement of previously
issued financial statements to reflect the correction of a material misstatement
due to fraud or error Identification by us of a material misstatement of the
financial statements under audit in circumstances that indicate that the misstatement
would not have been detected by the entity’s internal control, and Ineffective
oversight of the entity’s financial reporting and internal control by those charged
with governance PCAOB AS 1305.05 When we evaluate the significance
of a deficiency, or combination of deficiencies, in internal control over financial
reporting, we determine the level of detail and degree of assurance that would
satisfy prudent officials in the conduct of their own affairs that they have reasonable
assurance that transactions are recorded as necessary to permit the preparation
of financial statements in accordance with the applicable financial reporting
framework. PCAOB AS 2201.70, AICPA AU-C 265.10 If we determine that the deficiency,
or combination of deficiencies, would prevent prudent officials in the conduct
of their own affairs from concluding that they have reasonable assurance that
transactions are recorded as necessary to permit the preparation of financial
statements in accordance with the applicable financial reporting framework, then
we deem the deficiency, or combination of deficiencies, to be an indicator of
a material weakness. PCAOB AS 2201.70, AICPA AU-C 265.10 \nGiven
the high degree of judgment required, we are required to consult with the Regional
PPD if any of the above circumstances are noted because they are indicators that
a material weakness in internal control over financial reporting exists. Such
consultation includes the effects on our report and the implications on client
continuance. EY Policy These matters require consultation with the Regional
PPD and should not be delegated to other partners within the PPD group assigned
to the Region.\n\nThe following diagram can be used to assist in
evaluating deficiencies as it graphically depicts the evaluation process required
under PCAOB AS 2201:\n'', ''# SOCD : Evaluate control deficiencies\n ## 1 Significant
deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)\nFor
integrated audits, we include consideration of the entity’s interim financial
statements in our evaluation of a material weakness.\nA control deficiency alone
may not represent a significant deficiency (or material weakness if required to
be communicated in the jurisdiction). However, a combination of deficiencies affecting
the same significant account or disclosure, or relevant assertion, may increase
the risk of material misstatement and give rise to a significant deficiency (or
material weakness). \nWe determine whether individual control deficiencies
that affect the same significant account or disclosure, relevant assertion or
component of internal control individually or in combination result in a material
weakness. PCAOB AS 2201.65\n\nWe, management, the internal audit
function or other third parties may identify control deficiencies. Regardless
of who identifies the control deficiency, we consider all control deficiencies
accumulated in our evaluation. Our evaluation requires significant professional
judgment and involves audit executives. We do not accumulate deficiencies identified
by others that do not affect the identified significant accounts and disclosures
and relevant assertions.\nThe severity of a deficiency depends on: Whether there
is a reasonable possibility that the entity’s controls will fail to prevent, or
detect and correct, a misstatement in an account or disclosure The magnitude
of the potential misstatement resulting from the deficiency or deficiencies The
severity of a deficiency does not depend on whether a misstatement actually has
occurred but on whether there is a reasonable possibility that the entity’s controls
will fail to prevent or detect and correct a misstatement of an account balance
or disclosure. Significant deficiencies and material weaknesses may exist even
though we have not identified misstatements during the audit. The evaluation of
whether a deficiency in internal control presents a reasonable possibility that
a misstatement may occur may be made without quantifying the probability of occurrence
as a specific percentage or range.'', ''# SOCD : Evaluate control deficiencies\n ## 1
Significant deficiencies (or material weaknesses, if required to be communicated
in the jurisdiction)\n When we identify one or more control deficiencies,
we determine, on the basis of the audit procedures performed, whether individually
or in combination, they constitute a significant deficiency (or material weakness
if required to be communicated in the jurisdiction) in internal control. ISA
265.8, AICPA AU-C 265.09 \nWe evaluate the severity
of all identified control deficiencies to reach an overall conclusion as to whether
control deficiencies, individually or in combination, are significant deficiencies
or material weaknesses as of the date of management’s assessment. We are not required
to search for deficiencies that, individually or in combination, are less severe
than a material weakness. However, as part of our responsibilities for communication
with those charged with governance, we consider whether there are any deficiencies,
or combinations of deficiencies, that have been identified during the audit that
are significant deficiencies (refer to SOCD 4). PCAOB AS 2201.62\n
As defined in the ISAs, a significant deficiency in internal control is a deficiency,
or a combination of deficiencies, in internal control that, in our professional
judgment, is of sufficient importance to merit the attention of those charged
with governance. As defined in US auditing standards, a significant deficiency
in internal control is a deficiency, or a combination of deficiencies, in internal
control that, in our professional judgment, is less severe than a material weakness,
yet is of sufficient importance to merit the attention of those charged with governance.
As defined in US auditing standards, a material weakness is a deficiency, or combination
of deficiencies, such that there is a reasonable possibility that a material misstatement
of the entity’s annual financial statements will not be prevented or detected
on a timely basis.'', " # 3E_3.5 Internal control report modifications [AICPA
audits ending prior to 15 December 2021, All PCAOB audits]\n ## 3E_3.5 Non-Issuers
Example 1 - Disclaimer of opinion on internal control over financial reporting-
scope limitation\n Because of the matter described above, we were not able to
obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
However, a material weakness has been identified. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the
Company''s financial statements will not be prevented, or detected and corrected,
on a timely basis. If one or more material weaknesses exist, a company''s internal
control over financial reporting cannot be considered effective. The following
material weakness has been included in the accompanying [ title of management''s
report]. [ Identify the material weakness described in management''s report and
include a description of the material weakness, including its nature and its actual
and potential effect on the presentation of the entity''s financial statements
issued during the existence of the material weakness.] In addition, we include
the following sentence in the Report on Financial Statements section: We considered
the material weakness identified above in determining the nature, timing, and
extent of audit procedures applied in our audit of the [ indicate year, e.g.,
“20X7”] financial statements, and this report does not affect such report on the
financial statements. If, through the limited procedures we performed, we conclude
that a material weakness exists that has not been identified by management, we
indicate this fact in our report and we include a description of the material
weakness: Material Weakness In performing our procedures, the following material
weakness has been identified that was [ if management does not issue a report
state, “not identified by management”, if management has issued a report but has
not identified the material weakness state “not included in (title of management’s
report)”]. [ Include a description of the material weakness, including its nature
and its actual and potential effect on the presentation of the entity’s financial
statements issued during the existence of the weakness.] A material weakness is
a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement
of the Company’s financial statements will not be prevented, or detected and corrected,
on a timely basis. If one or more material weaknesses exist, a company''s internal
control over financial reporting cannot be considered effective. In addition,
we include the following sentence in the Report on Financial Statements section:
We considered the material weakness identified above in determining the nature,
timing, and extent of audit procedures applied in our audit of the [ indicate
year, e.g., “20X7”] financial statements, and this report does not affect such
report on the financial statements. ", ''# 8-11 Update and evaluate controls\n ## 8
Address control exceptions\n ### 8.2 Determine audit response to control exceptions\nWhen
we have identified a control deficiency, before concluding on an appropriate audit
response, we consider each of the following: The nature and severity of the
deficiency (e.g., do the facts and circumstances indicate that the deficiency
could be a significant deficiency (or material weakness if required to be communicated
in the jurisdiction) if not remediated) The nature of the control (e.g., manual
or automated control) and the nature and timing of the remediation (e.g., was
the deficiency identified late in the year, or was it identified early in the
year but management failed to remediate it earlier) Whether we believe the control
is operating effectively as of period end and whether the evidence we would obtain
from a lower extent of testing provides a basis for such a conclusion If a
remediated control would otherwise represent a material weakness, the CAML is
available to assist the team in developing the appropriate remediation testing
strategy.\nIf the identified control deficiency has been remediated prior to period
end, it will not be evaluated further as part of our period end assessment of
the effectiveness of internal control over financial reporting. However, if the
control deficiency has not been remediated and tested before period end, we further
evaluate the control deficiency to determine if it constitutes a significant deficiency
(or material weakness). Even if a control is successfully remediated before period
end, we reconsider our financial statement audit strategy because the control
was not operating effectively throughout the entire audit period.\n\n'', '' #
INTEGRATED AUDIT - Reports on internal control over financial reporting [effective
for AICPA audits of periods ending on or after 15 December 2021]\n ## 5 Internal
control report modifications\n ### 5.1 One or more material weaknesses exist\n #### 5.1.1
Effect of material weakness on prior periods\n Management may determine that
a material weakness identified in the current year also was present in one or
more previous assessment periods. When describing the potential effects on the
financial statements issued during the existence of the material weakness, it
is not necessary or appropriate to describe the effects of the material weakness
on the earlier periods unless there also is a restatement of the prior year financial
statements that coincides with the discovery of the material weakness. The annual
assessment of internal control over financial reporting is not intended to be
a comparative presentation and the current year assessment in effect supersedes
the previous assessment. #### 5.1.2 Management unable to assess controls\n Management’s
inability to assess certain controls over financial reporting that should have
been included in management’s assessment represents a control deficiency in the
control environment and monitoring components of internal control over financial
reporting that we must evaluate as to significance. If the transactions or balances
subject to controls that management is unable to assess are material to the entity’s
financial statements, we ordinarily would determine that this control deficiency
represents a material weakness. Refer to INTEGRATED AUDIT 5.3.1 for further requirements
and guidance. #### 5.1.3 Management remediates material weakness too late to
test\n We may encounter a situation where management identifies and remediates
a material weakness too late for them or us to test the new control prior to the
filing date. We would conclude that, absent evidence that the control has been
remediated, the material weakness still exists. If management concludes that
internal control is ineffective and appropriately identifies the material weakness
in its report, we issue an adverse opinion on the effectiveness of internal control
over financial reporting. Refer to Appendix 2.2.4 – INTEGRATED AUDIT – Illustration
9 for an example report.'', '' # 3.6 Adverse opinion on the effectiveness of internal
control over financial reporting [AICPA audits ending prior to 15 December 2021,
All PCAOB audits]\n ## 3.6.1 General guidance\n ### 3.6.1.1 Effect of material
weakness on prior periods\n Management may determine that a material weakness
identified in the current year also was present in one or more previous assessment
periods. When describing the potential effects on the financial statements issued
during the existence of the material weakness, it is not necessary or appropriate
to describe the effects of the material weakness on the earlier periods unless
there also is a restatement of the prior year financial statements that coincides
with the discovery of the material weakness. The annual assessment of internal
control over financial reporting is not intended to be a comparative presentation
and the current year assessment in effect supersedes the previous assessment. ###
3.6.1.2 Management unable to assess controls\n Management’s inability to assess
certain controls over financial reporting that should have been included in management’s
assessment represents a control deficiency in the control environment and monitoring
components of internal control over financial reporting that we must evaluate
as to significance. If the transactions or balances subject to controls that management
is unable to assess are material to the entity’s financial statements, we ordinarily
would determine that this control deficiency represents a material weakness. Refer
to RM 3.5.3.2 Scope limitations imposed by circumstances for further requirements
and guidance. ### 3.6.1.3 Management remediates material weakness too late to
test\n We may encounter a situation where management identifies and remediates
a material weakness too late for them or us to test the new control prior to the
filing date. We would conclude that, absent evidence that the control has been
remediated, the material weakness still exists. If management concludes that internal
control is ineffective and appropriately identifies the material weakness in its
report, we issue an adverse opinion on the effectiveness of internal control over
financial reporting.\xa0Refer to [Issuers] RM 3E_3.6 Issuers Example 1 [Issuers] [Non-Issuers] RM
3E_3.6 Non-Issuers Example 1 [Non-Issuers] for an example report.'', '' # Amendments
to Rules Regarding Management\''s Report on Internal Control Over Financial Reporting,
Release Nos. 33-8809; 34-55928; FR-76, 6/27/2007\n ## I. BACKGROUND\n 3.
Final Rule After consideration of the comments received, we have determined that
it is appropriate for the Commission\''s rules to include the definition of material
weakness since it is an integral term associated with Sarbanes-Oxley and the Commission\''s\xa0
implementing rules. Management\''s disclosure requirements with respect to ICFR
are predicated upon the existence of a material weakness; therefore, we agree
with the commenters\'' suggestion that our rules should define this term, rather
than refer to auditing literature. As a result, we are amending Exchange Act Rule
1 2b-2 and Rule 1- 02 of Regulation S-X to define the term material weakness.
We have decided to adopt the material weakness definition substantially as proposed.
The Commission has determined that the proposed material weakness definition appropriately
describes those conditions in ICFR that, if they exist, should be disclosed to\xa0
investors and should preclude a conclusion that ICFR is effective. Therefore,
our final rules define a material weakness as a deficiency, or a combination of
deficiencies, in ICFR such that there is a reasonable possibility that a material
misstatement of the registrant\''s annual or interim financial statements will\xa0
not be prevented or detected on a timely basis. Exchange
Act Rule 1 2b-2 and Rule 1-02(p) of Regulation S-X.\xa0\xa0 We anticipate that
the PCAOB\''s auditing standards will also include this definition of material
weakness. After consideration of the proposed alternatives to the "reasonable
possibility" standard in the proposed definition of material weakness, we decided
not to change the proposed standard. Revisions that have the effect of increasing
the likelihood\xa0 (that\xa0 is, risk) of a material misstatement in a company\''s
financial reports that can exist before being disclosed could give rise to questions
about the meaning of a disclosure that ICFR is effective and whether the threshold
for "reasonable assurance" is\xa0 being\xa0 lowered. Moreover, we do not believe
improvements in efficiency arising from revisions to the likelihood element would
be significant to the overall ICFR evaluation effort, due, in part, to our view
that the effort evaluating deficiencies would be similar\xa0 under the alternative
standards (for example, "reasonable possibility" as compared to "reasonable likelihood").
Lastly, we do not believe the volume of material weakness disclosures, which has
declined each year since the initial implementation of Section 404 of SarbanesOxley,
is too high such that investors would benefit from a reduction in disclosures
that would result from a higher likelihood threshold. Regarding the reference
to interim financial statements in the definition of material weakness, while
we believe annual materiality considerations are appropriate when making judgments
about the nature and extent of evaluation procedures, we believe\xa0 that the
judgments about whether a control is adequately designed or operating effectively
should consider the requirement to provide investors reliable annual and quarterly
financial reports. Moreover, if management\''s annual evaluation identifies a\xa0
deficiency that poses a reasonable possibility of a material misstatement in the
company\''s quarterly reports, we believe management should disclose the deficiency
to investors and not assess ICFR as effective. As such, we have not removed the
reference to\xa0 interim financial statements from the definition of material
weakness. In response to the comments regarding the need for the Commission to
define the term "significant deficiency," we are seeking additional comment on
a definition of that term as part of a separate release issued in the Federal
Register.'']'
sentences:
- Level of Evidence to be considered from substantive procedures
- if we identify an exception, hoow can we determine that the exception falles under
deficiency, weakness or material weakness
- In what way we docuement the IPE risk of being inaccurate and incomplete
- source_sentence: '[''# PMTE: PM, TE and SAD nominal amount\n ## Purpose\n Materiality
is the magnitude of\xa0an omission or misstatement that, individually or in the
aggregate, in light of the surrounding circumstances, could reasonably be expected
to influence the economic decisions of the users of the financial statements.
We apply the concept of materiality in planning and performing the audit, in evaluating
the effect of identified misstatements on the audit and in forming our audit opinion. PCAOB
AS 2105.03 As we develop our audit strategy, we determine materiality at both: The
overall level for the financial statements as a whole – planning materiality
(PM) The individual account or balance level – tolerable error (TE) We set
TE to reduce to an appropriately low level the probability that the aggregate
of uncorrected and undetected misstatements exceeds PM. We also use TE as an estimate
of undetected misstatements within the financial statements when we conclude on
uncorrected misstatements. If we identify accounts or disclosures for which misstatements
of less than PM could be expected to influence the economic decisions of users
of the financial statements, we develop our audit strategy at the significant
account or disclosure level using a lower level of materiality that responds to
that expectation, rather than modifying PM. In addition to determining PM and
TE, we determine an amount below which identified misstatements are considered clearly
trivial. We call this the SAD nominal amount. If materiality for specific accounts
or disclosures is set at an amount lower than the SAD nominal amount, we use
materiality related to those accounts or disclosures as the amount which identified
misstatements are considered clearly trivial. The determination of PM and TE is
not a mathematical exercise but requires professional judgment involving audit
executives, including the partner in charge of the audit. In recurring audits,
we determine materiality earlier in our audit as we use our understanding of the
entity and knowledge about the users of the financial statements from prior periods.
We start from the point of using the same measurement basis and percentages for
determining PM and TE as we have used in prior periods, and consider: Significant
changes in the business (e.g., acquisitions, disposals, debt issuance) Significant
changes in the markets and environment Changes in the users of the financial
statements and in their expectations\n'', '' # US A&A News - 13 January 2022\n ##
Audit and other internal-only matters\n ### Audit reminders in light of SEC staff’s
increased scrutiny of registrants’ evaluations of materiality in error corrections\n Audit
teams should be aware that the SEC staff has increased its scrutiny of registrants’
evaluations of the materiality of errors identified in the historical financial
statements, how the errors are corrected and the related internal control assessments.
Teams also should be aware of the views that the SEC staff recently expressed
about how to evaluate and correct these errors in accordance with Staff Accounting
Bulletin 1.M, Materiality. The staff’s views are described in our 2021 AICPA
& CIMA Conference on Current SEC and PCAOB Developments publication and summarized
in SEC in Focus\xa0– January 2022. In addition to focusing on the matters addressed
by the SEC staff, audit teams should refer to EY GAM MISSTATE: Misstatements
and summary of audit differencesand consider the following as they complete current-year
audits or evaluate identified errors in current or prior period financial statements: It
is a best practice for companies to correct any errors identified during the financial
statement close process and the completion of the audit or review of the financial
statements. Correcting these errors before the financial statements are issued
will mitigate the risk that the errors could accumulate over time to become material
or result in a material misstatement when aggregated with other immaterial errors
identified in subsequent periods. Teams should also consider that the current
and historical Summary of Audit Differences is considered when assigning an overall
engagement risk rating in the client continuance process. Qualitative considerations
should be thoughtfully considered before reaching a conclusion on the materiality
of errors. Qualitative factors may result in a conclusion that a quantitatively
small error is material. Teams should consider the qualitative factors in MISSATE
4.2, the entity’s facts and circumstances, and the users of the financial statements
when concluding on the materiality of errors. Quantitative and qualitative considerations
are also important as we evaluate the significance of misstatements in disclosures,
including our evaluation of whether they merit the attention of those charged
with governance and their potential effect on the decisions of users of the financial
statements as described in MISSTATE 4.7. Regardless of whether a consultation
is required by MISSTATE 7, teams need to document their evaluation of the effect
of uncorrected misstatements, individually and in the aggregate, on the financial
statements, including consideration of qualitative factors. Refer to EY GAM MISSTATE
for related documentation requirements and enablement. Region Professional Practice
is available to help engagement teams if there are questions about the evaluation
of the materiality of errors identified in the current or historical financial
statements. ### Updated archiving reminders\n The archiving reminders have
been updated for all audits. These reminders address topics such as Change in
days to archive, Managing review notes in EY\xa0Canvas, Personally identifiable
information and the requirements for using automated techniques, required forms
and team discussion, and EY\xa0Canvas reminders. Audit teams should consider reviewing
these reminders before the conclusion stage of the audit. The reminders can be
found on the Documentation and archive topic page in EY\xa0Atlas.'', '' # EY
Private FAQs [US]\n ## Planning Materiality (PM)\n ### When a different measurement
basis is determined to be appropriate for the current period audit as compared
to the prior period audit and the change results in a significant increase to
materiality, are there incremental considerations or requirements prior to concluding
on materiality? [10 December 2020]\n When we determine that a different measurement
basis is appropriate for the current period compared to the prior period and the
PM amount is substantially different from that used in the prior period, we must
have a clear rationale as to why such a difference is appropriate.\xa0We are now
required to document our rationale for using a different measurement basis from
that used in prior periods when it results in a PM amount that is substantially
different from that used in prior periods. EY Form 105-Post Planning materiality
can be used to complete this documentation. An example of a completed Form 105-Post
can be found here. ### Are the ranges for PM for entities using the startup
guidance changing as well? [10 December 2020]\n Yes. For start-up entities, the
upper end of the range for the assets measurement basis has changed from 2% to
3%. We are required to consult with a Professional Practice Director assigned
to the Region before using the guidance on determining PM for start-up entities
each year we apply this guidance. This requirement has not changed.'', '' # Other
auditing matters (Consultations)\n ## Access to workpapers when we are successor
auditor\n ### Supplemental industry matters\n #### Governmental entities\n To
determine whether we can serve as the principal auditors when we have not been
engaged by the primary government as the auditor of the financial reporting entity
and have not been engaged to audit the primary government’s general fund (or the
primary operating fund). [ EY GAM GROUP-Government and Public Sector GROUP ENGAGE] Consult
with: PPP-R N/A ##### Financial services entities (see definition in EE7505)\n ###### All
financial services entities affected by Rule 206(4)-2 of the Investment Advisers
Act of 1940 (the Custody Rule)\n When we identify compliance exceptions during
our examination that may be strong indicators of material non-compliance for surprise
examination engagements used to satisfy Rule 206(4)-2 of the Investment Advisers
Act of 1940 (the Custody Rule), due to the requirement for us to report material
non-compliance to the SEC within 1 business day of determining such material non-compliance
exists. [ US RM 10.5; EY IL857] Consult with: PPD-FSO N/A #### Asset Management\n ##### Fund
of fund audits\n When we audit a highly concentrated fund of funds (less than
5 underlying fund investments) where an EYG member firm does not audit at least
50% of the underlying funds based on percentage of net assets and we have not
consulted previously. This consultation is required in the first year a fund of
funds meets these criteria. This consultation is also required for the first audit
period as successor auditors, if these criteria are met. The decision to consult
in a subsequent year is a matter of professional judgment of the partner in charge
of the audit and other executive members of the audit team based on a fund of
fund’s audit client’s specific facts and circumstances. [ AS-GUIDANCE AS_6.6.5] Consult
with: PPP-R N/A ##### Planning materiality for late-stage fund audits\n If
we determine that the most appropriate measurement basis for planning materiality
uses activity that is disclosed in the financial statements but which has occurred
outside of the periods presented in the financial statements (i.e., outside the
periods presented in the statements of operations and changes in net assets) for
a late-stage fund (e.g., cumulative distributions capped at cumulative contributions).
[ EY GAM PMTE – Asset management 1.6] Consult with: PPP-R N/A'', '' # Office
of Chief Accountant\n ## Roberson, Brian K.\n ### Quantification of Errors\n You
may have noticed that this reference to auditing literature is the first time
I have mentioned auditing. That is because quantifying errors and evaluating materiality
is first a responsibility of the registrant. Auditors need to ensure that they
properly quantify and evaluate errors in the process of their audit, but registrants
are responsible for preparing materially correct financial statements. One last
area I would like to touch on in the materiality arena is the materiality disclaimer
at the end of each FASB standard. In line with my previous comments regarding
the consideration of future periods, registrants should ensure they are thinking
about future periods when using the materiality disclaimer. For example, not straight-lining
lease payments may be immaterial in the current year, but if it will become material
in future periods due to lower or higher rents in the later years, you should
ensure that you get the accounting right before the differences become material.
You also need to ensure that you are continually updating your assessment as to
whether or not applying a standard is immaterial. Said another way, the fact that
not applying a particular provision in GAAP is immaterial in one period is not
a lifetime pass to never apply the provision - instead, materiality should be
reconsidered each period. And one further thought. If you are availing yourself
of the materiality disclaimer because you do not like what the standard would
do to your financial statements, then you are not applying the disclaimer properly.
In that case, you have essentially admitted that you believe that not applying
the standard would cause users to view your financial statements differently,
which, by definition, makes the difference material.'', " # Assessing Materiality:
Focusing on the Reasonable Investor When Evaluating Errors\n ## Objective Assessment
of Materiality\n Since the concept of materiality is focused on the total mix
of information from the perspective of a reasonable investor, those who assess
the materiality of errors, including registrants, auditors, audit committees,
and others, should do so through the lens of the reasonable investor. To be consistent
with the concept of materiality, this assessment must be objective. A materiality
analysis is not a mechanical exercise, nor should it be based solely on a quantitative
analysis. Rather, registrants, auditors, and audit committees need to thoroughly
and objectively evaluate the total mix of information. Such an evaluation should
take into consideration all relevant facts and circumstances surrounding the error,
including both quantitative and qualitative factors, to determine whether an error
is material to investors. An objective analysis should put aside any potential
bias of the registrant, auditor, or audit committee that would be inconsistent
with the perspective of a reasonable investor. For example, a restatement of previously-issued
financial statements may result in the clawback of executive compensation, reputational
harm, a decrease in the registrant''s share price, increased scrutiny by investors
or regulators, litigation, or other impacts. An assessment where a registrant''s,
auditor''s, or audit committee''s biases based on such impacts influenced a determination
that an error is not material to previously-issued financial statements so as
to avoid a Big R restatement would not be objective and would be inconsistent
with the concept of materiality. One area where the staff in OCA have observed
an increased need for objectivity is in the assessment of qualitative factors.
The interpretive guidance on materiality in SAB No. 99 speaks to circumstances
where a quantitatively small error could, nevertheless, be material because of
qualitative factors. However, we are often involved in discussions where the reverse
is argued—that is, a quantitatively significant error is nevertheless immaterial
because of qualitative considerations. We believe, however, that as the quantitative
magnitude of the error increases, it becomes increasingly difficult for qualitative
factors to overcome the quantitative significance of the error. We also note that
the qualitative factors that may be relevant in the assessment of materiality
of a quantitatively significant error would not necessarily be the same qualitative
factors noted in SAB No. 99 when considering whether a quantitatively small error
is material. So it might be inappropriate for a registrant to simply assess those
qualitative factors in reverse when evaluating the materiality of a quantitatively
significant error. Such a scenario highlights the importance of a holistic and
objective assessment from a reasonable investor''s perspective.", '' # US A&A
News - 20 April 2023\n ## Audit and other internal-only matters\n ### Reminder
about change in PMTE start-up entities consultation requirement\n The start-up
entities consultation requirement in EY GAM PMTE\xa01.2c has been revised and
audit teams are now required to consult with a Professional Practice Director
assigned to the Region (Regional PPD) only when significant judgment is involved
in determining whether the entity has the characteristics of a start-up entity
as described in PMTE\xa01.2c. Previously, the consultation was required each
year before determining planning materiality (PM) for start-up entities when we
applied the guidance in PMTE\xa0Appendix\xa02. As discussed in our 5 April 2023
Special edition A&A News, this change is expected to make the evaluation of whether
significant judgment is involved, particularly for pre-revenue entities in the
product development stage, more straightforward, and the audit team may not be
required to consult. Additional guidance and examples have also been added in PMTE\xa01.2c
to assist audit teams in making this determination. ### Updated EY centralized
pricing service analysis memorandum\n The EY centralized pricing service analysis
memorandum that summarizes the procedures Ernst\xa0& Young\xa0LLP (the US\xa0Firm)
has performed to support our conclusions about whether we can use the information
provided by certain pricing services as audit evidence has been updated. The procedures
address aspects of certain requirements in AS_6.6\xa0 Auditing investments, including
alternative investments and reflect monthly inquiries of the pricing vendors.
The US Firm performed the centralized procedures for the following vendors: ICE
Data Pricing & Reference Data, LLC (ICE) Refinitiv Datascope (Refinitiv) S&P Markit
(Markit) Bloomberg Evaluated Pricing Service System (Bloomberg or BVAL) PricingDirect
Inc. (JP Morgan Pricing Direct or JPD) Merrill Lynch Valuations, LLC (PriceServe)
Section 2 and Section\xa03 of the EY\xa0centralized pricing service analysis have
been updated to reflect their applicability to AICPA audits following the issuance
of SAS No. 144, Amendments to AU-C Sections\xa0501, 540, and 620 Related to the
Use of Specialists and the Use of Pricing Information Obtained From External Information
Sources, which is effective for audits of periods ending on or after 15\xa0December
2023. This aligns with the updates recently made to AS_6.6.4.5.3, Evaluating
the valuation process used by the pricing service, and AS_6.6.8, Auditing the
valuation of exchange-traded investments. We use this memorandum to support our
conclusions by either retaining it in EY\xa0Canvas or referring to it in our workpapers.'',
'' # Qualifications of Accountants, Release Nos. 33-10876; 34-90210; FR-88; IA-5613;
IC-34052, 12/11/2020\n ## II. Amendments\n Under the existing and amended
rules, Hold Co. is an affiliate of the audit client (i.e., Hold Co. has control
over the entity under audit) and, as such, also is an audit client. A practitioner
might then apply the control provision in amended Rule\xa0 2-01(f)(4)(i) to Hold
Co. and deem both Entities A and B as affiliates of the audit client, regardless
of the dual materiality threshold in amended Rule 2-01(f)(4)(ii). Again, the practitioner
may deem Entities A and B to be affiliates because "audit client"\xa0 Hold Co.
controls both Entities A and B. Relatedly, when assessing whether Entities A
and B are affiliates under amended Rule 2-01(f)(4)(ii), it may otherwise be unclear
to a practitioner assessing materiality of the "audit client" whether\xa0 such
assessment applies to the entity under audit or an affiliate (such as Parent 1).
Absent clarification, the above-illustrated application (i.e., circular reading)
of the final amendments could negate the Commission\''s objective to focus the
common control provision on those relationships and services that are more likely
to threaten the\xa0 objectivity and impartiality of an auditor by introducing
a dual materiality threshold. While the proposal did not use the term "entity
under audit" in the rule text, we believe this modification is consistent with
the proposal to separate out common\xa0 control from existing Rule 2-01(f)(4)(i)
and include a materiality provision within the definition. Now that the amended
common control provision includes a dual materiality threshold, we believe the
modification to use the term "entity under audit"\xa0 in place of the term "audit
client" in amended Rules 2-01(f)(4)(i) and (ii) is important to avoid any misunderstandings
about how the common control provision should be applied in the final amendments.
While some commenters requested that we further amend our rules to incorporate
more precise usage of the term "entity under audit" See supra note 51.\xa0 in
other paragraphs that currently refer to the "audit client," those requests\xa0
are beyond the scope of this rulemaking. We did not propose or seek comment on
those particular amendments. Moreover, those additional amendments are not necessary
to effectuate any aspect of the proposal. As such, we are not incorporating the
term "entity\xa0 under audit" into other paragraphs of the rule that currently
refer to "audit client," including the significant influence provisions of amended
17 CFR 210.2-01(f)(4)(iii) ("amended Rule 2-01(f)(4)(iii)") and 17 CFR 210.2-01(f)(4)(iv)
("amended\xa0 Rule 2-01(f)(4)(iv)"). However, the incorporation of "entity under
audit" in amended Rules 2-01(f)(4)(i) and (ii), while leaving the term "audit
client" within the significant influence provisions in amended Rules 2-01(f)(4)(iii)
and (iv), does\xa0 not imply a change from the historical practical application
of these provisions, which has focused and should continue to focus on the entity
under audit. Assessing Materiality and Monitoring Several commenters requested
clarification and examples of the application of the proposed amendments, including
the proposed materiality qualifier. In response, we are providing several examples
to illustrate the application of the final amendments to particular\xa0 fact patterns.'',
'' # Qualifications of Accountants, Release Nos. 33-10876; 34-90210; FR-88; IA-5613;
IC-34052, 12/11/2020\n ## II. Amendments\n Some commenters also suggested that
we incorporate a materiality qualifier in the evaluation of whether controlling
entities would be considered affiliates, similar to analogous provisions in the
AICPA and IESBA ethics and independence requirements. While commenters cited the
benefits of having a common regime for the consideration of controlling entities,
we were not persuaded that the benefits from such conformity would justify the\xa0
potential risk to an auditor\''s objectivity and impartiality in these circumstances.
In particular, commenters did not specifically highlight ongoing monitoring or
other compliance challenges associated with the identification of affiliates that
control an\xa0 entity under audit. It does not appear that the challenges related
to the changing population of potential affiliates and the ability to obtain appropriate
information that occur in the common control context also exist when evaluating
entities that have control\xa0 over the entity under audit. In addition, the relationship
between sister entities and an entity under audit is generally different than
the relationship between a controlling entity and the entity under audit. The
controlling entity typically has some decision-making\xa0 ability or an ability
to influence the entity under audit. As such, we believe an auditor\''s independence
likely would be impaired if the auditor provides non-audit services to or engages
in relationships with the controlling entity that are described in Rule\xa0 2-01(c),
even in situations in which the entity under audit is not material to the controlling
entity. Accordingly, we are not adopting commenters\'' recommendations to incorporate
a materiality qualifier in the evaluation of whether controlling entities should\xa0
be considered affiliates. Entity Under Audit We are making modifications to
incorporate the term "entity under audit" within amended 17 CFR 210.2-01(f)(4)(i)
("amended Rule 2-01(f)(4)(i)") and amended 17 CFR 210.2-01(f)(4)(ii) ("amended
Rule 2-01(f)(4)(ii)"). Given the comments received\xa0 on this point and in light
of other changes we are making to the final amendments, we believe it is appropriate
to replace the term "audit client" with "entity under audit" in amended Rules
2-01(f)(4)(i)\xa0 and (ii). Specifically, as illustrated in the example below,
we are concerned that if we do not revise this terminology, it could be applied
in a manner that would negate the adopted dual materiality threshold.\xa0 fedreg_33-108766_pg19.pdf
In Figure 1, assume the controlling entities (i.e., Parent 1 and Hold Co.) have
control over all entities downstream from them. If amended Rules 2-01(f)(4)(i)
and (ii) referred to an "audit client" instead of an "entity under audit," Sister
1\xa0 may be deemed an affiliate of the audit client regardless of the materiality
of Sister 1 or the Entity Under Audit to Parent 1 based on the following application: Parent
1 controls the entity under audit, which makes Parent 1 an affiliate of the audit
client. Parent 1 also is an "audit client" because the definition of such term
includes affiliates. A practitioner might then apply the control provision\xa0
in amended Rule 2-01(f)(4)(i) to Parent 1 and deem Sister 1 an affiliate of the
audit client, regardless of the dual materiality threshold. The practitioner would
consider Sister 1 an affiliate because it is controlled by "audit client" Parent
1 without\xa0 applying the materiality analysis in the common control provision
of amended Rule 2-01(f)(4)(ii). Similarly, Entities A and B may be deemed affiliates
of the audit client regardless of the materiality of Entity A, Entity B, or the
entity under audit to Hold Co. based on the following application:'', '' # Qualifications
of Accountants, Release Nos. 33-10876; 34-90210; FR-88; IA-5613; IC-34052, 12/11/2020\n ##
II. Amendments\n Although some commenters objected to including a materiality
threshold in the ICC amendments, we do not believe the adopted approach increases
the risk to auditor independence. When an entity under audit is under common control
with an investment company,\xa0 or an investment adviser or sponsor, and the adopted
dual materiality threshold is not met, we believe there is less risk to an auditor\''s
objectivity and impartiality from the auditor\''s services to or relationships
with such sister entity, for the reasons\xa0 discussed regarding the dual materiality
threshold for the common control provision in the affiliate of the audit client
definition. Rule 2-01(f)(14)(i)(D) retains the existing provision that includes
sister entities engaged in the business of\xa0 providing administrative, custodian,
underwriting, or transfer agent services to any entity identified by amended 17
CFR 210.2-01(f)(14)(i)(A) ("amended Rule 2-01(f)(14)(i)(A)") and amended 17 CFR
210.2-01(f)(14)(i)(B), regardless of materiality.\xa0 Further,\xa0 we believe
any threats to independence that may exist when the entity\xa0 Rule 2-01(b). One
commenter sought clarification about whether Rule 2-01(f)(14) would apply to engagements
required by Rule 206(4)-2(a)(6) under the Investment Advisers Act of 1940 (the
"Advisers Act Custody Rule"). See letter from EY; 17\xa0 CFR 275.206(4)-2(a)(6).
The Advisers Act Custody Rule requires\xa0 that when an investment adviser or
a related person acts as a qualified custodian for client funds and securities,
the investment adviser, in addition to the independent verification requirement,
must annually obtain, or receive from the related person, an\xa0 internal control
report prepared by an independent public accountant. The Advisers Act Custody
Rule defines a "related person" as "any person, directly or indirectly, controlling
or controlled by [the investment adviser], and any person that\xa0 is under\xa0
common control with [the investment adviser]." 17 CFR 275.206(4)-2(d)(7). For
purposes of this engagement, the related person qualified custodian would be the
"entity under audit" under the final rule. Accordingly, the auditor engaged would\xa0
apply\xa0 amended Rule 2-01(f)(4)—not amended Rule 2-01(f)(14)—to determine the
affiliates of the audit client, which would require the auditor to assess the
investment adviser\''s materiality if under common control. In these circumstances,
however, the accountant\xa0 would be required to be independent of the adviser
under Rule 2-01(b) regardless of the results of this materiality determination.
In response to commenters\'' request for guidance, consistent with the discussion
in Section II.A.1.a.iii above, we remind auditors and their audit clients of their
shared responsibility to monitor independence, including monitoring affiliates
and obtaining\xa0 information necessary to assess materiality. We are not providing
any specific guidance on materiality at this time because we understand that auditors
and their audit clients have developed approaches to determine materiality in
compliance with current rules,\xa0 and we expect those approaches would continue
to be applicable under the final amendments. Auditors, working together with their
audit clients, should assess materiality for the purpose of complying with Rule
2-01, as amended, including consideration of relevant\xa0 qualitative and quantitative
factors. Depending on the circumstances, it may be reasonable to use certain measures,
such as assets under management, when evaluating a potential affiliate in one
instance, but not when evaluating a different potential affiliate.\xa0 The assessment
also should be attentive to the nature of the relationship, the governance structure
of the entity, certain business and financial relationships, and other relevant
qualitative considerations. As noted in Section II.A.1.a.iii, understanding the
organizational structure of an audit client is important when considering the
general standard under Rule 2-01(b). We believe that after the initial materiality
assessment to identify potential affiliates,\xa0 the auditor and the audit client
should conduct updated assessments based on any transactions, Commission filings,
or other information that become known to the auditor or the audit client through
reasonable inquiry. New 17 CFR 210.2-01(f)(14)(i)(F) — The Provision To Include
Investment Companies Advised or Sponsored by an Affiliate Investment Adviser or
Sponsor'']'
sentences:
- What is the need for selecting representative samples while performing testing
- Do we change the materiality of the audit in later stage of the audit
- what is an it dependent manual control
- source_sentence: '['' # ASC 820 Fair value measurement\n ## Highlights of US GAAP
and other references\n ASC 820 defines the term fair value in US GAAP and
provides a principles-based framework for measuring fair value. It also requires
various disclosures about an entity’s fair value measurements. ASC 820 does not
address the issue of “what” to measure at fair value. The objective of a fair
value measurement is to estimate the price at which an orderly transaction to
sell the asset or to transfer the liability would take place between market participants
at the measurement date under current market conditions (that is, an exit price
at the measurement date). Fair value is a market-based measurement, not an entity-specific
measurement. As such, it is measured using the assumptions that market participants
would use when pricing the asset or liability, including assumptions about risk.
A reporting entity’s intention to hold an asset or to settle or otherwise fulfill
a liability is not relevant when determining fair value. Valuation techniques
used to measure fair value should maximize the use of relevant observable inputs
and minimize the use of unobservable inputs.'', '' # Topic No. 5: Staff Observations
Regarding Disclosures of Smaller Financial Institutions\n ## Asset Quality /
Loan Accounting Issues\n ### Loans Measured for Impairment Based on Collateral
Value\n GAAP requires creditors to measure a loan for impairment based on the
fair value of the collateral when the creditor determines that foreclosure is
probable. \xa0 See ASC 310-10-35-32.\xa0In addition, GAAP allows a creditor to
measure an impaired loan on which the repayment of the loan is expected to be
provided solely by the underlying collateral (i.e., a collateral-dependent loan)
based on the fair value of the collateral. \xa0 See ASC 310-10-35-22.\xa0For
registrants with significant loan portfolios that they measure for impairment
based on the collateral value, we may ask them to describe: How and when they
obtain third-party appraisals, and how the appraisals impact the amount and timing
of any provision or charge-off; The types of appraisals they obtain, such as “retail”
value or “as-is” value; What procedures they perform between receiving updated
appraisals to ensure that they appropriately measure loan impairments; If applicable,
the reasons they do not obtain appraisals in a timely manner; The typical timing
of classifying loans as nonaccrual, recording any provision for loan loss, or
recognizing a charge-off; How they determine the amount to charge off; How they
classify and account for partially charged off loans after receiving an updated
appraisal. For example, we may ask a registrant to explain whether the loans are
returned to performing status or whether the loans remain in nonperforming status;
The reasons they make any adjustments to appraised values when calculating impairment;
and What procedures they perform to estimate the fair value of the collateral
when they do not use external appraisals or have not obtained updated appraisals. ###
Credit Risk Concentrations\n GAAP requires disclosure of all significant concentrations
of credit risk arising from financial instruments, whether from an individual
counterparty or groups of counterparties. \xa0 See ASC 825-10-50-20.\xa0Some
registrants have a small number of loans making up a significant portion of their
recorded investment in nonaccrual loans. We may ask those registrants to discuss: The
types of concentrations that exist, such as geographies, industries, collateral
types, product types, or borrower types (e.g., commercial developers, residential
land developers, commercial businesses, etc.); The types of collateral securing
the loans; The amount of total credit exposure; The allowance for the impaired
loans; Whether the loans are guaranteed and what procedures they perform to evaluate
the guarantors’ ability and willingness to repay the balance owed; and Any special
circumstances surrounding the loans, such as whether the loans relate to properties
out of the registrant’s normal market area and whether the loans are related to
the registrant’s participation in a larger loan underwritten by another financial
institution.'', '' # R6.4 Measuring the gain or loss\n ## R6.4.1 Determining
the transaction price\n ### R6.4.1.3 Noncash consideration\n The consideration
received might be in the form of goods, services or other noncash consideration
(e.g.,\xa0property, plant and equipment; a financial instrument). When an entity
(i.e.,\xa0the seller) receives, or expects to receive, noncash consideration,
the fair value of the noncash consideration at contract inception is included
in the transaction price. This statement applies to transactions that are in
the scope of ASC 610-20. This guidance does not apply to nonreciprocal transactions,
exchanges of financial assets that are outside the scope of ASC 860, nonmonetary
service transactions and exchanges of like-kind inventory between entities in
the same line of business, which are in the scope of ASC 845. The Board decided Paragraph
BC39 of ASU 2016-12. not to specify how the fair value of noncash consideration
should be measured (e.g.,\xa0 ASC\xa0606 does not require an entity to apply ASC\xa0820),
in part because the form of noncash consideration varies widely. Rather, the FASB
observed that the concept of fair value exists in other parts of ASC\xa0606 (e.g.,\xa0the
guidance on consideration payable to a customer) and that choosing the appropriate
basis for measuring the fair value of noncash consideration requires judgment.
If an entity cannot reasonably estimate the fair value of noncash consideration,
it should measure the noncash consideration indirectly by reference to the standalone
selling price of the promised nonfinancial assets or ISNFAs. For contracts with
both noncash and cash consideration, an entity will only use fair value principles
to measure the value of the noncash consideration and will look to other guidance
within ASC\xa0606 for the cash consideration. The Board also noted Paragraph
BC39 of ASU 2016-12. that an entity should consider the accounting guidance in ASC\xa0815
to determine whether an arrangement with a right to noncash consideration contains
an embedded derivative. Because noncash consideration is measured at contract
inception, any changes in the fair value of noncash consideration due to its form
(e.g.,\xa0a change in the price of a share an entity is entitled to receive from
a counterparty) after contract inception are recognized following the relevant
US GAAP guidance for the form of the noncash consideration (e.g.,\xa0 ASC\xa0321
if the noncash received is an equity security). That is, entities should apply
the relevant US GAAP guidance to determine whether and how any changes in fair
value that occurred after contract inception due to the form of noncash consideration
received or receivable from the transaction should be recognized. Paragraph BC40
of ASU 2016-12. The fair value of noncash consideration could change both because
of the form of consideration (e.g.,\xa0a change in the price of a share an entity
is entitled to receive from a counterparty) and for reasons other than the form
of consideration (e.g.,\xa0a change in the exercise price of a share option because
of the entity’s performance). Under the standard, the variable consideration guidance
applies only to variability resulting from reasons other than the form of consideration
(i.e.,\xa0there is uncertainty about whether the entity will be entitled to the
noncash consideration if a future event occurs or does not occur). The FASB decided Paragraph
BC252 of ASU 2014-09 and paragraph BC42 of ASU 2016-12. that entities should
apply the variable consideration guidance to the same types of variability, regardless
of the form (i.e.,\xa0cash or noncash) in which the consideration will be received.'',
'' # B1.1.2 Identifying business combination transactions\n ## B1.1.2.1 What
is a business combination?\n ### B1.1.2.1.3 Definition of a business (updated
June 2021)\n #### B1.1.2.1.3.1 Applying the ‘substantially all‘ threshold
(updated June 2021)\n Excerpt from Accounting Standards Codification Business
Combinations\xa0— Overall Implementation Guidance and Illustrations 805-10-55-5A
If substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of similar identifiable assets, the set
is not considered a business. Gross assets acquired should exclude cash and cash
equivalents, deferred tax assets, and goodwill resulting from the effects of deferred
tax liabilities. However, the gross assets acquired should include any consideration
transferred (plus the fair value of any noncontrolling interest and previously
held interest, if any) in excess of the fair value of net identifiable assets
acquired. The graphic below summarizes how to apply the “substantially all” threshold
(Step 1): The guidance requires an entity to first evaluate whether substantially
all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets. If that threshold
is met, the set is not a business and does not require further evaluation. We
believe entities would apply ASC 805 to measure the assets in the set (including
the measurement exceptions) for the purpose of applying the threshold. The term
“substantially all” is intended to be applied consistently with how it is used
in other areas of US\xa0GAAP (e.g.,\xa0 ASC 606, ASC 810) and entities should
consider how “substantially all” is applied in its existing accounting policies
in such areas. Entities will need to apply judgment to determine what is considered
“substantially all” because the standard does not provide a bright line for making
this assessment. An entity also should consider how the inherent estimation uncertainty
of its valuations of assets acquired and consideration transferred affects the
evaluation of what is considered “substantially all.” That is, an entity may conclude
there is a range of fair value measurements for an asset in a set because of inherent
estimation uncertainty that exists in fair value measurements. An entity should
consider whether different measurements in that range affect whether the “substantially
all” threshold is met. The guidance does not require a quantitative evaluation
of whether the threshold is met. For example, the assessment could be qualitative
if an entity concludes that all of the fair value will be assigned to one element
of the set. In contrast, if an entity concludes that there is clearly significant
value in assets that are not similar, the entity may be able to qualitatively
determine that the threshold is not met. In many acquisitions, an entity may not
need additional information to evaluate whether the threshold is met because it
would need most of the information required for such an analysis, regardless of
whether the acquired set is a business or a group of assets. That is, in an acquisition
of a group of assets that does not constitute a business, an entity must determine
the fair value of all the assets acquired to allocate consideration transferred
to those assets on a relative fair value basis in accordance with ASC 805-50-30-3.
In other situations, such as dispositions, quantitatively evaluating whether the
threshold is met may be more challenging because an entity wouldn’t otherwise
be required to determine the fair value of all of the assets.'', " # Credit Risk
Retention, Release No. 34-73407, 12/24/2014\n ## III. General Risk Retention
Requirement\n b. Risk Retention Measurement and Disclosures As explained in
the revised proposal, to provide greater clarity for the measurement of risk retention
and to help prevent sponsors from structuring around their risk retention requirement
by negating or reducing the economic exposure they are required to\xa0 maintain,
the agencies proposed to require sponsors to measure their risk retention requirement
using fair valuation methodologies acceptable under GAAP.
Cf. Financial Accounting Standards Board, Accounting Standards
Codification Topic 820 —\xa0 Fair Value Measurement. Several commenters supported
the proposed requirement that sponsors measure their risk retention requirement
using fair value. These commenters expressed the view that the use of fair value
would be a more prudent approach than using face value and would\xa0 be consistent
with market practice. Other commenters, however, expressed general concern with
the proposed method by which sponsors would be required to measure their risk
retention. One commenter asserted that using fair value instead of face value
would require sponsors to hold higher risk retention levels and attract additional
investor capital, leading to higher borrowing costs. Two commenters explained
that many sponsors who consolidate their issuing entities or keep their securitizations
on their balance\xa0 sheets do not currently utilize fair value calculations,
and that requiring such sponsors to measure their risk retention with fair value
would create significant burden and expense. Commenters expressed several specific
accounting concerns regarding the use of fair value to measure risk retention.
Two commenters asserted that calculation of fair value under GAAP is not designed
to provide a definitive value, but a range of values. In\xa0 this regard, they
expressed concerns about how the requirements could be met if a sponsor calculates
multiple possible fair values. One commenter asserted that requiring sponsors
to determine fair value in accordance with GAAP would be burdensome for securitization\xa0
transactions where the sponsor (or other retaining entity) is established outside
the United States, giving rise to additional work and costs. For such transactions,
the commenter urged the agencies to allow sponsors to measure fair value using
local (non-U.S.)\xa0 GAAP or International Financial Reporting Standards (IFRS).
One commenter asserted that GAAP does not prescribe use of a single valuation
technique, but allows entities to use various techniques, including market, income
and cost approaches. The commenter\xa0 stated, however, that the reproposal implied
that sponsors would be limited to specific valuation techniques and requested
that the final rule clarify that sponsors are not so restricted. The commenter
also asserted that the reproposal equated intrinsic value\xa0 with fair value,
which are distinct standards of value. In this regard, the commenter stated that
reference to intrinsic value should either be excluded from the final rule or
the agencies should clarify that intrinsic and fair value are two separate concepts.
The agencies invited comment in the reproposal on whether accountants would be
asked to perform agreed upon procedures reports related to measurement of the
fair value of sponsors'' retained ABS interests. One commenter responded that
such requests would\xa0 be unlikely and requested that the agencies not mandate
agreed upon procedures in the final rule. One commenter stated that sponsors should
be permitted to measure their risk retention requirement by using either fair
value or securitization value (the value specified in the operative documents
for the securitization transaction, subject to certain limitations)\xa0 methodology.
The commenter stated that securitization value is familiar to sponsors and investors,
and permitting its use would accommodate a range of current industry practices.
The commenter also stated that securitization value would be easier to compute\xa0
than fair value. One commenter asserted that any required risk retention amount
for ABCP conduits should be calculated by reference to the principal balance,
and not the fair value, of the ABS interests and asserted that using fair value
will be difficult, expensive and\xa0 unnecessary, especially given the revolving
nature of the asset pool. Commenters also requested clarification as to whether,
when they are calculating the fair value with respect to revolving pool of assets,
they can make static pool assumptions.", '' # L2.4 Lessee accounting\n ## L2.4.2
Operating leases\n ### L2.4.2.5 Impairment of right-of-use assets in operating
leases (updated September 2021)\n #### L2.4.2.5.2 Measure an impairment (Step
3)\n Fair value considerations ASC\xa0820 provides a principles-based framework
for measuring fair value when US GAAP requires or permits a fair value measurement
and requires disclosures about the use of fair value measurements. ASC 820 defines
fair value as “the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement
date.” Under ASC\xa0820, a fair value measurement of a nonfinancial asset takes
into account a market participant’s ability to generate economic benefits by using
the asset in its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use. Therefore, fair value is
a market-based measurement and not an entity-specific measurement. It is determined
based on assumptions that market participants would use in pricing the asset or
liability. The exit price objective of a fair value measurement applies regardless
of the reporting entity’s intent and/or ability to sell the asset or transfer
the liability at the measurement date. When determining the fair value of a right-of-use
asset, a lessee should consider what market participants would pay to lease the
asset (i.e.,\xa0what a market participant would pay for the right-of-use asset)
for its highest and best use, even if that use differs from the current or intended
use by the reporting entity. For\xa0example, a lessee that currently leases space
for use as a grocery store may conclude that the highest and best use of the space
by market participants would be to use it as a fitness center. While the concept
of highest and best use of an asset may consider its use in a different condition,
the objective of a fair value measurement is to determine the price of the asset
in its current form. Therefore, if no market exists for an asset in its current
form, but there is a market for the transformed asset, the reporting entity should
back out the costs to transform the asset (as well as any associated profit margin)
to determine the fair value of the asset in its current condition. That is, a
fair value measurement should consider the costs market participants would incur
to recondition the asset (after acquiring the asset in its current condition)
and the compensation they would expect for this effort. A contract restriction,
which does not allow the lessee to sublease the asset, does not result in a fair
value of zero. Instead, a lessee must consider how a market participant would
value the right to use the asset with a sublease restriction in a hypothetical
sale. Refer to section F1.3 5.2.1, Restrictions on assets (before the adoption
of ASU 2022-03) or section F1.3 5.2.1A , Restrictions on assets (after the adoption
of ASU 2022-03), of our FRD, Fair value measurement, for further discussion on
the effect on fair value of a restriction on the use of an asset. Refer to our
FRD, Impairment or disposal of long-lived assets, for further discussion of
evaluating assets for impairment in accordance with ASC 360-10 and our FRD, Fair
value measurement, for further discussion on measuring fair value. Refer to section
L2.6.3, Sublessor accounting, for discussion of evaluating right-of-use assets
for impairment when a lessee enters into a sublease.'', '' # ASC 606 Revenue from
contracts with customers\n ## Highlights\xa0of US GAAP and other references\n ASC
606 provides\xa0accounting guidance for all revenue arising from contracts with
customers and affects\xa0all entities that\xa0enter into\xa0contracts to provide
goods or services to their customers (unless the contracts are in the scope of
other US GAAP\xa0requirements, such as\xa0those for\xa0leases). The standard outlines\xa0the
principles an entity must apply to measure and recognize revenue and the related
cash flows. The core principle is that an entity will recognize revenue at an
amount that reflects the consideration to which the entity expects to be entitled
in exchange for transferring goods or services to a customer.\xa0 The principles
in the standard are applied using the following five steps: Identify the contract(s)
with a customer Identify the performance obligations in the contract Determine
the transaction price Allocate the transaction price to the performance obligations
in the contract Recognize revenue when (or as) the entity satisfies a performance
obligation ASC 606 also requires a comprehensive and coherent set of revenue
recognition disclosures to enable users of financial statements to understand
the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers.'', '' # R6.2 Scope\n ## R6.2.7 Contracts partially
in the scope of other guidance\n The following example illustrates how an entity
evaluates a transaction that includes the transfer of a nonfinancial asset and
a financial asset that is partially in the scope of ASC\xa0610-20 and partially
in the scope of ASC\xa0860: Illustration 2-11: Contract to transfer nonfinancial
and financial assets partially in the scope of ASC\xa0610-20 Entity A enters
into a contract to sell machinery (a nonfinancial asset) with a fair value of
$3 million and a financial asset with a fair value of $1 million to Entity B.
The group of assets is not a business, and Entity B is not Entity A’s customer
in this transaction because the assets are not outputs of Entity A’s ordinary
activities. Analysis Entity A concludes that substantially all of the fair
value of the assets promised in the contract is not concentrated in nonfinancial
assets (approximately 75% 1 of the value of the assets is concentrated in nonfinancial
assets). Therefore, the financial asset in the contract is not an ISNFA. Entity
A concludes that the machinery should be accounted for under ASC\xa0610-20, and
the financial asset should be accounted for under other US\xa0GAAP (e.g.,\xa0
ASC\xa0860). Entity A applies the guidance in ASC\xa0606-10-15-4 2 to determine
how to separate and initially measure the consideration received for the machinery
and the financial asset. Note: This analysis doesn’t illustrate how to measure
and allocate the transaction price to the separate assets under ASC\xa0606-10-15-4.
______________________________ 1 Calculated as $3 million of nonfinancial assets
divided by $4 million of total assets. 2 See ASC\xa0610-20-15-9. The following
example illustrates a transaction that includes the transfer of a nonfinancial
asset and services that is partially in the scope of ASC 610-20 and partially
in the scope of ASC 606:'', " # US A&A News - 23 March 2023\n ## Standard setter
updates\n ### FASB\n #### FASB proposes fair value accounting and enhanced disclosures
for certain crypto assets\n The FASB proposed requiring entities to measure
certain crypto assets at fair value each reporting period and reflect changes
in fair value in net income. Entities would have to present crypto assets measured
at fair value separately from other intangible assets on the balance sheet and
changes in fair value of crypto assets separately from changes in the carrying
amounts of other intangible assets in the income statement. They would also be
required to provide interim and annual disclosures about the type of crypto assets
they hold and any changes in their holdings of crypto assets. Comments are due\xa06
June 2023. See our upcoming To\xa0the\xa0Point. #### 2023 US GAAP financial reporting
and SEC reporting taxonomies available for use\n The 2023 US\xa0GAAP financial
reporting taxonomy (GRT) and the 2023 SEC reporting taxonomy (SRT) for XBRL reporting
have been accepted by the SEC and released for public use. The 2023 GRT contains
updates for amendments from accounting standards and other improvements since
last year. The 2023 SRT updates primarily relate to improvements for SEC Staff
Accounting Bulletin No. 121 on obligations to safeguard crypto assets that an
entity holds for platform users. The SEC staff strongly encourages companies to
use the most recent version of the respective taxonomy for their submissions to
take advantage of the most up-to-date tags. For more details, see the FASB''s
Media Advisory. #### Upcoming meetings\n 29 March 2023 FASB meeting The FASB
will discuss its projects on (1) Conceptual framework: the reporting entity, (2)
Disaggregation: income statement expenses and (3) Financial instruments: credit
losses (Topic 326)\xa0–\xa0acquired financial assets. For more information, see
the FASB’s calendar.", '' # I2.1.1 General\xa0provisions\n ## I2.1.1.1 Scope
(updated July 2021)\n ### I2.1.1.1.1 A holder’s accounting for cryptocurrencies\n The
proliferation of cryptocurrencies and the lack of US GAAP guidance that specifically
addresses cryptocurrencies have raised questions about how holders of these assets
should account for them. In this context, we use the term cryptocurrency to refer
to digital assets that serve purely as a medium of exchange (e.g.,\xa0Bitcoin).
We generally believe that cryptocurrencies meet the definition of indefinite-lived
intangible assets under ASC\xa0350, and holders should account for them at historical
cost less impairment. However, entities that are subject to specialized industry
guidance may account for cryptocurrencies differently. For example, investment
companies as defined under ASC\xa0946 account for their cryptocurrency investments
as “other investments” and subsequently measure these assets at fair value through
earnings. We recognize that cryptocurrencies have some characteristics that are
not typical of intangible assets. For example, unlike typical intangible assets,
they may be traded on exchanges, and they must be exchanged for an entity to realize
their value (i.e., they have little or no intrinsic value). Also, unlike other
intangible assets, units of a particular cryptocurrency are fungible. Some stakeholders
have raised concerns about the application of the intangible asset guidance in ASC\xa0350
to cryptocurrencies, saying it does not provide relevant information to financial
statement users because it does not appropriately reflect the economics associated
with cryptocurrencies. However, in the absence of standard setting that specifically
addresses the accounting for cryptocurrencies, entities that invest in cryptocurrencies
must apply existing accounting standards. The following table provides our analysis
of why cryptocurrencies meet the definition of intangible assets rather than other
types of assets:'']'
sentences:
- I am using pretax income as the basis for planning materiality for a non-PIE entity,
what is the precentage range that I can apply?
- What is the need for extending other substative procedures, eventhough we have
perfromed primary substaive procedures
- What standard outlines how to measure fair value under US GAAP?
- source_sentence: '['' # ESTIMATES: Accounting estimates\n ## 7 Obtain an understanding
of the estimation SCOTs\n Obtaining an understanding of the estimation SCOTs
for lower risk estimates is generally less extensive and time-consuming as lower
risk estimates may not require significant judgments and the estimation SCOT is
likely to be less complex. When our audit strategy for an accounting estimate
is a substantive only approach, we may obtain our understanding of the process
used to develop the estimate as we perform our substantive procedures over the
estimate. In other situations, when an estimation process is more formal, more
extensively supported by IT applications, and carried out throughout the audit
period, such as for more complex estimates in the financial services industry,
we may perform these procedures earlier in the audit and separate to our substantive
procedures. We may also perform our procedures to identify and understand controls
that respond to significant risks at the same time as our substantive procedures
(refer to ESTIMATES 10.1). However, we consider whether these controls are likely
to be application and ITDM controls for which we will need to understand and evaluate
ITGCs relevant to these controls (i.e., those that meet the criteria in SCOTS
6.1). In these situations, we may perform these procedures earlier in the audit
and separate to our substantive procedures. We recognize that the identification
and assessment of risks of material misstatement is an iterative process. Therefore,
as we obtain an understanding of the process, we may identify further risks of
material misstatement (i.e., what can go wrongs) that require additional audit
responses (e.g., further tests of controls and/or substantive procedures). In
some situations, our understanding of the process may result in a reassessment
of our preliminary assessment of inherent risk as required in ESTIMATES 4 and
therefore our categorization of the estimate as higher or lower risk. When understanding
the estimation SCOT, we consider whether there are policies that we would expect
to be in place at the entity but are absent, or that are not designed to allow
management or employees, in the normal course of performing their assigned functions,
to prevent or detect and correct misstatements on a timely basis (i.e., the policies
established by management may not result in the reporting of transactions in the
financial statements in accordance with the applicable financial reporting framework).
A lack of appropriate policies may be an indicator of a control deficiency, and
we consider whether a risk of material misstatement (i.e., WCGW) exists. Based
on our understanding of the critical path of all SCOTs, including our understanding
of estimation SCOTs, the significant disclosure processes and the FSCP sub-processes,
we evaluate whether together they appropriately support the preparation of the
entity’s financial statements in accordance with the applicable financial reporting
framework. We also determine whether we have identified one or more control deficiencies.
Refer to FSCP 6.'', '' # SCOTS: Significant classes of transactions [effective
for audits of periods ending before 15 December 2022]\n ## 7 Confirm our understanding
of routine and non-routine SCOTs\n We confirm our understanding of routine and
non-routine SCOTS to: Confirm the SCOT is correctly documented Test whether
our documentation reflects what actually occurs Assess whether we have identified
relevant WCGWs For estimation SCOTs, refer to ESTIMATES 11. We confirm our understanding
and documentation of a SCOT through walkthrough procedures, which include a combination
of inquiry, observation, inspection, and tracing a transaction through the critical
path of the SCOT (i.e., through initiation, recording, processing and reporting).
'', '' # ESTIMATES: Accounting estimates\n ## 6 Identify estimation SCOTs\n
We identify a separate estimation SCOT for each accounting estimate that is susceptible
to material misstatement. When an accounting estimate is a significant disclosure,
we identify a significant disclosure process. ISA 540.13, AICPA AU-C 540.12 We
recognize that estimation processes are often less formal and are performed at
or near the period end. Estimation processes generally do not follow a flow of
transactions but contain a series of actions management follows to determine the
estimate. When an estimate in a significant account has related disclosures,
we either include the process to develop the related disclosures in the estimation
SCOT or we identify a separate significant disclosure process for the related
disclosures.'', ''# ESTIMATES: Accounting estimates\n ## 11 Confirm our understanding
of the estimation SCOTs\n Controls reliance strategy
We determine whether our understanding of the estimation SCOT is appropriate based
on our substantive procedures. When we take a controls reliance
strategy, we confirm our understanding of, and evaluate, the design of the relevant
controls in estimation SCOTs every audit period. ISA 315.26, AICPA AU-C 315.26-30
Estimation SCOTs typically do not contain transaction flows but consist of a series
of actions within a process to determine the estimates. Therefore, instead of
tracing one transaction along the critical path, we confirm our understanding
of the design of the relevant controls in the estimation SCOT by: Inquiring
of the process owners about the series of actions within the process to determine
whether our understanding and documentation of relevant controls is accurate Observing
whether those who make and review estimates are performing functions and using
inputs as we understand they do Inspecting documents supporting the controls
used in the significant estimates Observing whether the process owners, or others,
act upon deviations from expectations As we confirm our understanding of the design
of the relevant controls in the estimation SCOT, we consider how management determined
whether: Assumptions are appropriate (i.e., based on reasonable interpretations
of present circumstances and the best available information) Assumptions are
consistent with those used in prior estimates or whether changes were needed because
of changes in the environment or circumstances Assumptions used are internally
consistent with other assumptions used in the accounting estimate, other accounting
estimates and with other aspects of the financial statements Alternative assumptions
may have been more appropriate The external data used in making an estimate is
relevant and reliable The internal data used is relevant, complete and accurate The
IT applications are producing complete and accurate data through our understanding
of the IT processes that support the IT applications. The method/model used to
make the estimate is appropriate, and if it has been applied correctly Inquiry
alone is not sufficient to confirm our understanding of, and evaluate, the design
of the relevant controls. We review supporting documentation to confirm the results
of the inquiries. It may be appropriate to confirm our understanding of, and
evaluate, the design of the relevant controls in conjunction with our testing
of the operating effectiveness of the controls. Substantive only strategy When
we take a substantive only strategy for an estimation SCOT, we determine whether
our understanding of the estimation SCOT is appropriate based on our substantive
procedures. We may perform our procedures to identify and evaluate controls that
address significant risks and the WCGWs over the preparation and posting (i.e.,
initiation, authorization and recording) of journal entries at the same time as
our substantive procedures (refer to ESTIMATES 10.1). However, as described in ESTIMATES
7, we consider the following when determining whether our understanding of the
estimation SCOT may need to occur earlier in the audit:\n'',
''# STRATEGY: Audit strategy and CRA [effective for audits of periods ending before
15 December 2022]\n ## 4 Design an audit strategy to respond to risks of material
misstatement at the assertion level\n ### 4.3 Substantive only strategy\n When
we are not required to or we decide not to take a controls reliance strategy,
we consider whether substantive procedures alone will provide sufficient appropriate
audit evidence to address the identified risks of material misstatement for each
relevant assertion of a significant account. If we do not believe sufficient information
is available to design and execute substantive procedures that will reduce detection
risk to an acceptably low level without mitigation from controls, we take a controls
reliance strategy and follow the guidance in STRATEGY 4.2. When
we determine not to place reliance on controls relevant to the audit for a SCOT,
we use the substantive only strategy. ISA 315.20, AICPA AU-C 315.21
When we use the substantive only strategy, we set control risk to “not rely on
controls”. With a substantive only strategy, we obtain a sufficient understanding
of the SCOT and supporting IT applications, from initiation to reporting, to determine
the WCGWs to help design effective substantive procedures. Although we may believe
a substantive only strategy is appropriate, we consider our approach for testing
IPE and any risks introduced to the SCOT by IT processes. When we are relying
on financial or non-financial data points that we cannot validate from substantive
procedures alone, we follow the guidance in IPE 4.5.3. When we assess control
risk as “not rely on controls” for an assertion, we obtain audit evidence only
from substantive procedures. When we reach the conclusion to assess control
risk as “not rely on controls” for an assertion, we combine our control risk assessment
with our inherent risk assessment to arrive at a combined risk assessment of either
moderate or high, as further described in STRATEGY 5. We then consider the nature,
timing, and extent of substantive evidence necessary to persuade us that there
is no material misstatement. As we design our substantive procedures, we acknowledge
that the nature and extent of substantive evidence is increased as detection risk
becomes our only means to address the inherent risk at the assertion level. ### 4.4
SCOTs with special circumstances\n The design of our audit strategy considers
the relationship between control risk and detection risk; however, we also consider
if the related SCOT includes any special circumstances that need to be addressed.
We take additional action as part of understanding the SCOTs for: SCOTs for
which substantive procedures alone may not be sufficient ( SCOTS 5.1) Related
party relationships and transactions ( SCOTS 5.2) Estimation SCOTs ( ESTIMATES
7) Significant risks ( SCOTS 5.4) Journal entries, including those that post
transactions from the sub-ledger to the general ledger ( SCOTS 5.5)\n'', ''# STRATEGY:
Risk assessment procedures, audit strategy and CRA [effective for audits of periods
ending on or after 15 December 2022]\n ## 6 Design an audit strategy to respond
to risks of material misstatement at the assertion level\n ### 6.4 SCOTs with
special circumstances\n The design of our audit strategy considers the relationship
between control risk and detection risk; however, we also consider if the related
SCOT includes any special circumstances that need to be addressed. We take additional
action as part of understanding the SCOTs for: SCOTs for which substantive
procedures alone may not be sufficient ( SCOTS 5.1) Related party relationships
and transactions ( SCOTS 5.2) Estimation SCOTs ( ESTIMATES 7) Significant
risks ( SCOTS 5.3) Journal entries, including non-standard journal entries used
to record non-recurring, unusual transactions or adjustments ( SCOTS 5.4)\n\n'',
'' # IT and automated techniques FAQs\n ## AT-06 [10-21]: What is the effect
of testing ITGCs and finding them ineffective when using automated techniques?\n As
stated in FAQ AT-05, the hxPSPs support a substantive only strategy for the significant
accounts and related SCOTs with a moderate CRA, and we do not rely on controls
over the SCOT or the IT processes. When we determine that ITGCs are ineffective
and the IT processes do not support the continuous operation of IT application
controls or the production of complete and accurate IPE, we consider the effect
on our audit strategy when using automated techniques. IT 9 details alternative
procedures that may be performed when ineffective ITGCs are identified. We add
the appropriate risks related to the use of IT (i.e., WCGWs) to our understanding
of the SCOT and design our audit procedures to address the risks accordingly.
The risks related to a manage change process are likely to be covered by the use
of the hxPSPs for the significant accounts addressed by the HxPSPs because the
hxPSPs are designed to detect risks of material misstatement which includes when
inappropriate modifications to IT applications have a material effect on the financial
statements. With respect to a manage access process, we understand the types
of misstatements that could occur and whether our hxPSPs appropriately respond
to these risks. For example, we could identify all entries recorded by the generic
users and determine whether transactions recorded by such users are appropriate. However,
we recognize that a manage access process that does not trace actions performed
by users who have extended rights may present higher risks that may not be detected
by our hxPSPs. In such situations, we design appropriate procedures to address
any remaining risk, which may include performing hxPSPs to a higher level of sensitivity,
performing additional procedures using automated techniques or performing more
traditional audit procedures. We also consider the effect of the ineffective
ITGCs or ineffective IT processes on that portion of our audit procedures that
are not executed using automated techniques, including on those significant accounts,
related SCOTs and IPE, where we do not apply the hxPSP audit programs (refer to IT
9).'', '' # Risk assessment using automated techniques - Tool-specific guidance
[AMER]\n ## A.4. Understand the SCOTs\n Guidance: Obtain an understanding
of SCOTs using automated techniques by understanding: Sources of transactions
and related double-entry accounting for routine and non-routine SCOTs (Procedure A.4a) Who
is involved in the process – for routine SCOTs (Procedure A.4b) Profile of credit
and debit activity over time – for routine SCOTs impacting the income statement
(Procedure A.4c) To understand the SCOTs, we use a combination of automated techniques,
inquiry, observation and inspection to obtain information to identify WCGWs. As
we obtain our understanding of SCOTs, we identify the points where information
is, or ought to be, captured, transferred, or modified including how IT affects
the SCOT, and consider what can go wrong. We do not attempt to identify everything
that could go wrong within the process, but focus where: There is a likelihood
of occurrence of misstatement The potential misstatement can result in a material
misstatement to the significant account, either individually or when aggregated
with other potential misstatements We perform the procedures in steps A.4a-A.4c,
as described below, for the following SCOTs, at a minimum: Affected by a significant
risk, including fraud risk Related to hxPSPs being performed Accounts where
the disaggregation factor is being used (Digital GAM SUBSTANTIVE SAP 4) Related
to specific risks of management override ( FRAUD RESPOND 6) For non-PCAOB audits:
We have identified controls as lower risk controls ( Digital GAM CONTROLS 4.1)
We perform these procedures for other SCOTs when they help understand unusual
items or changes to processes identified during other procedures All of the procedures
outlined in steps A.4a-A.4c below are performed for each significant account
impacted by a routine SCOT in scope based on the above guidance. Our automated
techniques typically give us greater insight into routine SCOTs than they do into
non-routine or estimation SCOTs due to the level of automation within the entity’s
accounting process and the way transactions are recorded, processed and reported.
Therefore, our procedures and documentation to understand the SCOTs depend on
the nature of the significant account and related SCOTs: Significant accounts
impacted by routine SCOTs: Perform A.4a through A.4c. Significant accounts not
impacted by routine SCOTs: Perform procedure A.4a; further procedures are recommended
but not required. Section B: Perform the procedures listed. We do not need to
retain the analyses used in our workpapers when our understanding is documented
narratively – refer to DOCUMENTATION. '', '' # ICFR FAQs [PCAOB-IA only]\n ##
Understanding the significant classes of transactions (SCOTs) and performing walkthroughs\n ###
IC-01 [03-16]: Is performing a walkthrough sufficient to document our understanding
of the SCOT?\n No. Thoroughly understanding the flow of transactions for the
SCOTs to identify the risks of material misstatement for the accounts and assertions
affected by these SCOTs (i.e., what can go wrongs (WCGWs)) is required by our
professional standards and is fundamental to an effective audit of the financial
statements and ICFR. We generally document our understanding of the SCOT separately
from the walkthrough template in a narrative or a flow chart (or in combination).
Our walkthrough is then used to confirm our understanding of the SCOT by selecting
a transaction to walk through the various critical paths in the process (e.g.,
if different types of revenue transactions are processed differently, our understanding
of the revenue SCOT would identify these different processes and our walkthroughs
would include a walkthrough of each of the different types of revenue transactions
in order to confirm our understanding). For estimation processes, the walkthrough
may be documented differently as there may not be an individual transaction to
walk through; however, we still perform procedures to confirm our understanding
of the flow of the estimation process from initiation to reporting in the general
ledger. Refer to SCOTS 2, SCOTS 7 and CONTROLS 3 for additional guidance. ###
IC-02 [03-16]: Why does EY GAM require us to obtain an understanding of the SCOT
and identify the WCGWs?\n Understanding the flow of transactions and risks of
material misstatement is a fundamental requirement of PCAOB Auditing Standard
2201, An Audit of Internal Control Over Financial Reporting That Is Integrated
with An Audit of Financial Statements, (AS 2201) (f/k/a AS No. 5) and is critical
to identifying all relevant risks of material misstatement in the flow of transactions
and those controls that, individually or in combination, mitigate the risks within
the SCOT. If we fail to focus on all important aspects of the flow of transactions
or the WCGWs are generic or not aligned with the risks in the process, we may
fail to identify whether a relevant control exists and thus our evaluation of
the effectiveness of the design of the entity’s controls may not be appropriate
(i.e., we may fail to determine that identified controls do not mitigate the risks).
Further, if we do not understand how the SCOT operates and the WCGWs, we may not
identify and test the appropriate controls or we may not design effective tests
of those controls. Refer to SCOTS 2, SCOTS 3, and SCOTS 4 for additional guidance.'',
'' # EY Private FAQs [US]\n ## SCOTS\n ### How is the Probing Inquiries approach
different than the top sheet approach for a non-PIE audit? [29 July 2021]\n The top
sheet approach allows us to carryforward our prior period documentation for a
recurring audit after we have obtained a current period transaction to confirm
whether there have been any changes in the critical path from the prior period.
The Probing Inquiries approach uses inquiries to confirm our understanding of
the critical path for each routine and non-routine SCOT every period and to identify
whether isolated or significant changes have occurred from the prior period based
on the results of our inquiries. For non-PIEs, when we identify no changes in
the critical path of the SCOT from the prior period, we document the results of
our probing inquiries in the Form 280-Post SCOTs form and carry forward our prior-period
documentation of the critical path (i.e., the tracing of a transaction), including
the related prior-period walkthrough procedures evidence to satisfy the requirement
of confirming our understanding of the SCOT. When using probing inquiries and
have identified no change, we are not required to select and obtain evidence for
a current period transaction unless we have already carried forward our transaction
for two audit periods. The carry forward period of the ticked and tied transaction
is the same under both approaches. When, as a result of our probing inquiries,
we identify changes in the critical path of the SCOT, we revise our process documentation,
as necessary, including what can go wrongs (WCGWs) and, when applicable, the identified
relevant controls. We evaluate the nature and extent of changes (i.e., isolated
or pervasive) and perform procedures to update our understanding. When pervasive
changes in a SCOT are identified, our procedures include tracing a transaction
through the critical path. Refer to SCOTS 7.2 for additional guidance. The use
of probing inquiries does not change the requirements for procedures we perform
to evaluate the design and determine the implementation of controls, including
the requirements in SCOTS 5 for special circumstances. We do not use probing
inquiries to replace our tracing of a transaction through the critical path when
we are performing an initial audit, or when we identify a new or non-recurring
SCOT on a recurring audit. Refer to “What are the requirements for completing
the Probing Inquiries approach?“ above for further details. ### Are there any
guidelines to how many periods in a row we can carry forward evidence for a non-PIE
audit? [29 July 2021]\n At a minimum, we update our documentation that supports
tracing a transaction along its critical path every three audit periods (i.e.,
we may carry forward prior period evidence for two audit periods after obtaining
the original transaction documentation in period 1) which is consistent with the
top sheet approach. In the year of adoption, if we have already carried forward
a walkthrough for two periods under the top sheet approach, we will need to select
a current period transaction and complete a walkthrough of the critical path using
Form 280-Post SCOTs form (Canvas form). This form retains content from prior
period upon EY Canvas rollforward allowing for easy updating.'']'
sentences:
- How many samples do I need to select for a quarterly control?
- What should I do if my population does not contain similar items
- what are the additional procedures we do we a particular SCOT includes significant
estimates
---
# BGE base Financial Matryoshka
This is a [sentence-transformers](https://www.SBERT.net) model finetuned from [BAAI/bge-base-en-v1.5](https://huggingface.co/BAAI/bge-base-en-v1.5) on the json dataset. It maps sentences & paragraphs to a 768-dimensional dense vector space and can be used for semantic textual similarity, semantic search, paraphrase mining, text classification, clustering, and more.
## Model Details
### Model Description
- **Model Type:** Sentence Transformer
- **Base model:** [BAAI/bge-base-en-v1.5](https://huggingface.co/BAAI/bge-base-en-v1.5)
- **Maximum Sequence Length:** 512 tokens
- **Output Dimensionality:** 768 tokens
- **Similarity Function:** Cosine Similarity
- **Training Dataset:**
- json
- **Language:** en
- **License:** apache-2.0
### Model Sources
- **Documentation:** [Sentence Transformers Documentation](https://sbert.net)
- **Repository:** [Sentence Transformers on GitHub](https://github.com/UKPLab/sentence-transformers)
- **Hugging Face:** [Sentence Transformers on Hugging Face](https://huggingface.co/models?library=sentence-transformers)
### Full Model Architecture
```
SentenceTransformer(
(0): Transformer({'max_seq_length': 512, 'do_lower_case': True}) with Transformer model: BertModel
(1): Pooling({'word_embedding_dimension': 768, 'pooling_mode_cls_token': True, 'pooling_mode_mean_tokens': False, 'pooling_mode_max_tokens': False, 'pooling_mode_mean_sqrt_len_tokens': False, 'pooling_mode_weightedmean_tokens': False, 'pooling_mode_lasttoken': False, 'include_prompt': True})
(2): Normalize()
)
```
## Usage
### Direct Usage (Sentence Transformers)
First install the Sentence Transformers library:
```bash
pip install -U sentence-transformers
```
Then you can load this model and run inference.
```python
from sentence_transformers import SentenceTransformer
# Download from the 🤗 Hub
model = SentenceTransformer("Ram934/mpnet-base-all-nli-triplet")
# Run inference
sentences = [
"[' # ESTIMATES: Accounting estimates\\n ## 7 Obtain an understanding of the estimation SCOTs\\n Obtaining an understanding of the estimation SCOTs for lower risk estimates is generally less extensive and time-consuming as lower risk estimates may not require significant judgments and the estimation SCOT is likely to be less complex. When our audit strategy for an accounting estimate is a substantive only approach, we may obtain our understanding of the process used to develop the estimate as we perform our substantive procedures over the estimate. In other situations, when an estimation process is more formal, more extensively supported by IT applications, and carried out throughout the audit period, such as for more complex estimates in the financial services industry, we may perform these procedures earlier in the audit and separate to our substantive procedures. We may also perform our procedures to identify and understand controls that respond to significant risks at the same time as our substantive procedures (refer to ESTIMATES 10.1). However, we consider whether these controls are likely to be application and ITDM controls for which we will need to understand and evaluate ITGCs relevant to these controls (i.e., those that meet the criteria in SCOTS 6.1). In these situations, we may perform these procedures earlier in the audit and separate to our substantive procedures. We recognize that the identification and assessment of risks of material misstatement is an iterative process. Therefore, as we obtain an understanding of the process, we may identify further risks of material misstatement (i.e., what can go wrongs) that require additional audit responses (e.g., further tests of controls and/or substantive procedures). In some situations, our understanding of the process may result in a reassessment of our preliminary assessment of inherent risk as required in ESTIMATES 4 and therefore our categorization of the estimate as higher or lower risk. When understanding the estimation SCOT, we consider whether there are policies that we would expect to be in place at the entity but are absent, or that are not designed to allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis (i.e., the policies established by management may not result in the reporting of transactions in the financial statements in accordance with the applicable financial reporting framework). A lack of appropriate policies may be an indicator of a control deficiency, and we consider whether a risk of material misstatement (i.e., WCGW) exists. Based on our understanding of the critical path of all SCOTs, including our understanding of estimation SCOTs, the significant disclosure processes and the FSCP sub-processes, we evaluate whether together they appropriately support the preparation of the entity’s financial statements in accordance with the applicable financial reporting framework. We also determine whether we have identified one or more control deficiencies. Refer to FSCP 6.', ' # SCOTS: Significant classes of transactions [effective for audits of periods ending before 15 December 2022]\\n ## 7 Confirm our understanding of routine and non-routine SCOTs\\n We confirm our understanding of routine and non-routine SCOTS to: Confirm the SCOT is correctly documented Test whether our documentation reflects what actually occurs Assess whether we have identified relevant WCGWs For estimation SCOTs, refer to ESTIMATES 11. We confirm our understanding and documentation of a SCOT through walkthrough procedures, which include a combination of inquiry, observation, inspection, and tracing a transaction through the critical path of the SCOT (i.e., through initiation, recording, processing and reporting). ', ' # ESTIMATES: Accounting estimates\\n ## 6 Identify estimation SCOTs\\n We identify a separate estimation SCOT for each accounting estimate that is susceptible to material misstatement. When an accounting estimate is a significant disclosure, we identify a significant disclosure process. ISA 540.13, AICPA AU-C 540.12 We recognize that estimation processes are often less formal and are performed at or near the period end. Estimation processes generally do not follow a flow of transactions but contain a series of actions management follows to determine the estimate. When an estimate in a significant account has related disclosures, we either include the process to develop the related disclosures in the estimation SCOT or we identify a separate significant disclosure process for the related disclosures.', '# ESTIMATES: Accounting estimates\\n ## 11 Confirm our understanding of the estimation SCOTs\\n Controls reliance strategy We determine whether our understanding of the estimation SCOT is appropriate based on our substantive procedures. When we take a controls reliance strategy, we confirm our understanding of, and evaluate, the design of the relevant controls in estimation SCOTs every audit period. ISA 315.26, AICPA AU-C 315.26-30 Estimation SCOTs typically do not contain transaction flows but consist of a series of actions within a process to determine the estimates. Therefore, instead of tracing one transaction along the critical path, we confirm our understanding of the design of the relevant controls in the estimation SCOT by: Inquiring of the process owners about the series of actions within the process to determine whether our understanding and documentation of relevant controls is accurate Observing whether those who make and review estimates are performing functions and using inputs as we understand they do Inspecting documents supporting the controls used in the significant estimates Observing whether the process owners, or others, act upon deviations from expectations As we confirm our understanding of the design of the relevant controls in the estimation SCOT, we consider how management determined whether: Assumptions are appropriate (i.e., based on reasonable interpretations of present circumstances and the best available information) Assumptions are consistent with those used in prior estimates or whether changes were needed because of changes in the environment or circumstances Assumptions used are internally consistent with other assumptions used in the accounting estimate, other accounting estimates and with other aspects of the financial statements Alternative assumptions may have been more appropriate The external data used in making an estimate is relevant and reliable The internal data used is relevant, complete and accurate The IT applications are producing complete and accurate data through our understanding of the IT processes that support the IT applications. The method/model used to make the estimate is appropriate, and if it has been applied correctly Inquiry alone is not sufficient to confirm our understanding of, and evaluate, the design of the relevant controls. We review supporting documentation to confirm the results of the inquiries. It may be appropriate to confirm our understanding of, and evaluate, the design of the relevant controls in conjunction with our testing of the operating effectiveness of the controls. Substantive only strategy When we take a substantive only strategy for an estimation SCOT, we determine whether our understanding of the estimation SCOT is appropriate based on our substantive procedures. We may perform our procedures to identify and evaluate controls that address significant risks and the WCGWs over the preparation and posting (i.e., initiation, authorization and recording) of journal entries at the same time as our substantive procedures (refer to ESTIMATES 10.1). However, as described in ESTIMATES 7, we consider the following when determining whether our understanding of the estimation SCOT may need to occur earlier in the audit:\\n', '# STRATEGY: Audit strategy and CRA [effective for audits of periods ending before 15 December 2022]\\n ## 4 Design an audit strategy to respond to risks of material misstatement at the assertion level\\n ### 4.3 Substantive only strategy\\n When we are not required to or we decide not to take a controls reliance strategy, we consider whether substantive procedures alone will provide sufficient appropriate audit evidence to address the identified risks of material misstatement for each relevant assertion of a significant account. If we do not believe sufficient information is available to design and execute substantive procedures that will reduce detection risk to an acceptably low level without mitigation from controls, we take a controls reliance strategy and follow the guidance in STRATEGY 4.2. When we determine not to place reliance on controls relevant to the audit for a SCOT, we use the substantive only strategy. ISA 315.20, AICPA AU-C 315.21 When we use the substantive only strategy, we set control risk to “not rely on controls”. With a substantive only strategy, we obtain a sufficient understanding of the SCOT and supporting IT applications, from initiation to reporting, to determine the WCGWs to help design effective substantive procedures. Although we may believe a substantive only strategy is appropriate, we consider our approach for testing IPE and any risks introduced to the SCOT by IT processes. When we are relying on financial or non-financial data points that we cannot validate from substantive procedures alone, we follow the guidance in IPE 4.5.3. When we assess control risk as “not rely on controls” for an assertion, we obtain audit evidence only from substantive procedures. When we reach the conclusion to assess control risk as “not rely on controls” for an assertion, we combine our control risk assessment with our inherent risk assessment to arrive at a combined risk assessment of either moderate or high, as further described in STRATEGY 5. We then consider the nature, timing, and extent of substantive evidence necessary to persuade us that there is no material misstatement. As we design our substantive procedures, we acknowledge that the nature and extent of substantive evidence is increased as detection risk becomes our only means to address the inherent risk at the assertion level. ### 4.4 SCOTs with special circumstances\\n The design of our audit strategy considers the relationship between control risk and detection risk; however, we also consider if the related SCOT includes any special circumstances that need to be addressed. We take additional action as part of understanding the SCOTs for: SCOTs for which substantive procedures alone may not be sufficient ( SCOTS 5.1) Related party relationships and transactions ( SCOTS 5.2) Estimation SCOTs ( ESTIMATES 7) Significant risks ( SCOTS 5.4) Journal entries, including those that post transactions from the sub-ledger to the general ledger ( SCOTS 5.5)\\n', '# STRATEGY: Risk assessment procedures, audit strategy and CRA [effective for audits of periods ending on or after 15 December 2022]\\n ## 6 Design an audit strategy to respond to risks of material misstatement at the assertion level\\n ### 6.4 SCOTs with special circumstances\\n The design of our audit strategy considers the relationship between control risk and detection risk; however, we also consider if the related SCOT includes any special circumstances that need to be addressed. We take additional action as part of understanding the SCOTs for: SCOTs for which substantive procedures alone may not be sufficient ( SCOTS 5.1) Related party relationships and transactions ( SCOTS 5.2) Estimation SCOTs ( ESTIMATES 7) Significant risks ( SCOTS 5.3) Journal entries, including non-standard journal entries used to record non-recurring, unusual transactions or adjustments ( SCOTS 5.4)\\n\\n', ' # IT and automated techniques FAQs\\n ## AT-06 [10-21]: What is the effect of testing ITGCs and finding them ineffective when using automated techniques?\\n As stated in FAQ AT-05, the hxPSPs support a substantive only strategy for the significant accounts and related SCOTs with a moderate CRA, and we do not rely on controls over the SCOT or the IT processes. When we determine that ITGCs are ineffective and the IT processes do not support the continuous operation of IT application controls or the production of complete and accurate IPE, we consider the effect on our audit strategy when using automated techniques. IT 9 details alternative procedures that may be performed when ineffective ITGCs are identified. We add the appropriate risks related to the use of IT (i.e., WCGWs) to our understanding of the SCOT and design our audit procedures to address the risks accordingly. The risks related to a manage change process are likely to be covered by the use of the hxPSPs for the significant accounts addressed by the HxPSPs because the hxPSPs are designed to detect risks of material misstatement which includes when inappropriate modifications to IT applications have a material effect on the financial statements. With respect to a manage access process, we understand the types of misstatements that could occur and whether our hxPSPs appropriately respond to these risks. For example, we could identify all entries recorded by the generic users and determine whether transactions recorded by such users are appropriate. However, we recognize that a manage access process that does not trace actions performed by users who have extended rights may present higher risks that may not be detected by our hxPSPs. In such situations, we design appropriate procedures to address any remaining risk, which may include performing hxPSPs to a higher level of sensitivity, performing additional procedures using automated techniques or performing more traditional audit procedures. We also consider the effect of the ineffective ITGCs or ineffective IT processes on that portion of our audit procedures that are not executed using automated techniques, including on those significant accounts, related SCOTs and IPE, where we do not apply the hxPSP audit programs (refer to IT 9).', ' # Risk assessment using automated techniques - Tool-specific guidance [AMER]\\n ## A.4. Understand the SCOTs\\n Guidance: Obtain an understanding of SCOTs using automated techniques by understanding: Sources of transactions and related double-entry accounting for routine and non-routine SCOTs (Procedure A.4a) Who is involved in the process – for routine SCOTs (Procedure A.4b) Profile of credit and debit activity over time – for routine SCOTs impacting the income statement (Procedure A.4c) To understand the SCOTs, we use a combination of automated techniques, inquiry, observation and inspection to obtain information to identify WCGWs. As we obtain our understanding of SCOTs, we identify the points where information is, or ought to be, captured, transferred, or modified including how IT affects the SCOT, and consider what can go wrong. We do not attempt to identify everything that could go wrong within the process, but focus where: There is a likelihood of occurrence of misstatement The potential misstatement can result in a material misstatement to the significant account, either individually or when aggregated with other potential misstatements We perform the procedures in steps A.4a-A.4c, as described below, for the following SCOTs, at a minimum: Affected by a significant risk, including fraud risk Related to hxPSPs being performed Accounts where the disaggregation factor is being used (Digital GAM SUBSTANTIVE SAP 4) Related to specific risks of management override ( FRAUD RESPOND 6) For non-PCAOB audits: We have identified controls as lower risk controls ( Digital GAM CONTROLS 4.1) We perform these procedures for other SCOTs when they help understand unusual items or changes to processes identified during other procedures All of the procedures outlined in steps A.4a-A.4c below are performed for each significant account impacted by a routine SCOT in scope based on the above guidance. Our automated techniques typically give us greater insight into routine SCOTs than they do into non-routine or estimation SCOTs due to the level of automation within the entity’s accounting process and the way transactions are recorded, processed and reported. Therefore, our procedures and documentation to understand the SCOTs depend on the nature of the significant account and related SCOTs: Significant accounts impacted by routine SCOTs: Perform A.4a through A.4c. Significant accounts not impacted by routine SCOTs: Perform procedure A.4a; further procedures are recommended but not required. Section B: Perform the procedures listed. We do not need to retain the analyses used in our workpapers when our understanding is documented narratively – refer to DOCUMENTATION. ', ' # ICFR FAQs [PCAOB-IA only]\\n ## Understanding the significant classes of transactions (SCOTs) and performing walkthroughs\\n ### IC-01 [03-16]: Is performing a walkthrough sufficient to document our understanding of the SCOT?\\n No. Thoroughly understanding the flow of transactions for the SCOTs to identify the risks of material misstatement for the accounts and assertions affected by these SCOTs (i.e., what can go wrongs (WCGWs)) is required by our professional standards and is fundamental to an effective audit of the financial statements and ICFR. We generally document our understanding of the SCOT separately from the walkthrough template in a narrative or a flow chart (or in combination). Our walkthrough is then used to confirm our understanding of the SCOT by selecting a transaction to walk through the various critical paths in the process (e.g., if different types of revenue transactions are processed differently, our understanding of the revenue SCOT would identify these different processes and our walkthroughs would include a walkthrough of each of the different types of revenue transactions in order to confirm our understanding). For estimation processes, the walkthrough may be documented differently as there may not be an individual transaction to walk through; however, we still perform procedures to confirm our understanding of the flow of the estimation process from initiation to reporting in the general ledger. Refer to SCOTS 2, SCOTS 7 and CONTROLS 3 for additional guidance. ### IC-02 [03-16]: Why does EY GAM require us to obtain an understanding of the SCOT and identify the WCGWs?\\n Understanding the flow of transactions and risks of material misstatement is a fundamental requirement of PCAOB Auditing Standard 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements, (AS 2201) (f/k/a AS No. 5) and is critical to identifying all relevant risks of material misstatement in the flow of transactions and those controls that, individually or in combination, mitigate the risks within the SCOT. If we fail to focus on all important aspects of the flow of transactions or the WCGWs are generic or not aligned with the risks in the process, we may fail to identify whether a relevant control exists and thus our evaluation of the effectiveness of the design of the entity’s controls may not be appropriate (i.e., we may fail to determine that identified controls do not mitigate the risks). Further, if we do not understand how the SCOT operates and the WCGWs, we may not identify and test the appropriate controls or we may not design effective tests of those controls. Refer to SCOTS 2, SCOTS 3, and SCOTS 4 for additional guidance.', ' # EY Private FAQs [US]\\n ## SCOTS\\n ### How is the Probing Inquiries approach different than the top sheet approach for a non-PIE audit? [29 July 2021]\\n The top sheet approach allows us to carryforward our prior period documentation for a recurring audit after we have obtained a current period transaction to confirm whether there have been any changes in the critical path from the prior period. The Probing Inquiries approach uses inquiries to confirm our understanding of the critical path for each routine and non-routine SCOT every period and to identify whether isolated or significant changes have occurred from the prior period based on the results of our inquiries. For non-PIEs, when we identify no changes in the critical path of the SCOT from the prior period, we document the results of our probing inquiries in the Form 280-Post SCOTs form and carry forward our prior-period documentation of the critical path (i.e., the tracing of a transaction), including the related prior-period walkthrough procedures evidence to satisfy the requirement of confirming our understanding of the SCOT. When using probing inquiries and have identified no change, we are not required to select and obtain evidence for a current period transaction unless we have already carried forward our transaction for two audit periods. The carry forward period of the ticked and tied transaction is the same under both approaches. When, as a result of our probing inquiries, we identify changes in the critical path of the SCOT, we revise our process documentation, as necessary, including what can go wrongs (WCGWs) and, when applicable, the identified relevant controls. We evaluate the nature and extent of changes (i.e., isolated or pervasive) and perform procedures to update our understanding. When pervasive changes in a SCOT are identified, our procedures include tracing a transaction through the critical path. Refer to SCOTS 7.2 for additional guidance. The use of probing inquiries does not change the requirements for procedures we perform to evaluate the design and determine the implementation of controls, including the requirements in SCOTS 5 for special circumstances. We do not use probing inquiries to replace our tracing of a transaction through the critical path when we are performing an initial audit, or when we identify a new or non-recurring SCOT on a recurring audit. Refer to “What are the requirements for completing the Probing Inquiries approach?“ above for further details. ### Are there any guidelines to how many periods in a row we can carry forward evidence for a non-PIE audit? [29 July 2021]\\n At a minimum, we update our documentation that supports tracing a transaction along its critical path every three audit periods (i.e., we may carry forward prior period evidence for two audit periods after obtaining the original transaction documentation in period 1) which is consistent with the top sheet approach. In the year of adoption, if we have already carried forward a walkthrough for two periods under the top sheet approach, we will need to select a current period transaction and complete a walkthrough of the critical path using Form 280-Post SCOTs form (Canvas form). This form retains content from prior period upon EY Canvas rollforward allowing for easy updating.']",
'what are the additional procedures we do we a particular SCOT includes significant estimates',
'What should I do if my population does not contain similar items',
]
embeddings = model.encode(sentences)
print(embeddings.shape)
# [3, 768]
# Get the similarity scores for the embeddings
similarities = model.similarity(embeddings, embeddings)
print(similarities.shape)
# [3, 3]
```
## Training Details
### Training Dataset
#### json
* Dataset: json
* Size: 27 training samples
* Columns: positive and anchor
* Approximate statistics based on the first 27 samples:
| | positive | anchor |
|:--------|:-------------------------------------------------------------------------------------|:----------------------------------------------------------------------------------|
| type | string | string |
| details | - min: 512 tokens
- mean: 512.0 tokens
- max: 512 tokens
| - min: 7 tokens
- mean: 17.11 tokens
- max: 38 tokens
|
* Samples:
| positive | anchor |
|:------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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--------------------------------------------------------------------------------------------------|:------------------------------------------------------------------------------------------------------------------------------------------|
| ['# SUBSTANTIVE TOD: Tests of details\n ## 2 Determining the extent of our tests of details\n ### 2.2 Key items\n #### 2.2.1 Determining scopes and thresholds for key items\nIn some cases a population contains transactions of high value but do not represent higher risk or are not considered unusual. In such cases, we may not identify these transactions as key items but would still need to address the risk of material misstatement in the population through other procedures.', '# SUBSTANTIVE TOD: Tests of details\n ## 2 Determining the extent of our tests of details\n ### 2.2 Key items\n #### 2.2.1 Determining scopes and thresholds for key items\n Key items selected may include the following: Items with certain qualitative characteristics. We select and examine items that exhibit specific characteristics because they are more likely to contain material misstatements. These are items that are suspicious, unusual, have a higher risk of material misstatement, or have a history of misstatement. Refer to SUBSTANTIVE EXECUTE 1.2.\nHigh value items. We may select and examine specific items over a certain monetary amount within a population because they are of high value and therefore individually significant because of their size as compared to other items in the population. When designing our substantive procedures, we exercise judgment in setting the scopes and thresholds used to select key items. This is different from judgmentally determining sample sizes.', ' # SAMPLE: 4 Sampling for tests of details\n ## 4.8 Evaluate and conclude on the sample results\n ### 4.8.2 Misstatements in key items\n If we identify a misstatement in our key items, we treat it as a factual misstatement. We do not project misstatements identified in key items as key items are not representative of the population. ISA 450.6, ISA 530.14, AICPA AU-C 450.06, AICPA AU-C 530.13, PCAOB AS 2315.26, PCAOB AS 2810.14 If we find misstatements in key items, we consider: The reason for the misstatement in the key item and determine whether this misstatement could occur within the whole population, including other key items Whether the design of our testing performed on the remaining population (i.e., other than key items) would identify whether errors similar in nature and type to the ones we discovered in our key item testing were also present in the remaining population When our testing on the remaining population is designed to identify similar errors, and we identify such errors when performing our testing, we determine if the errors are the result of a representative error or common feature in accordance with SAMPLE 4.8.1a When our testing is not designed in a manner that would identify similar errors, we consider the need to obtain additional audit evidence in accordance with SAMPLE 4.8.1b to address the risk in the remaining population The effect of a misstatement in key items on our CRA, particularly on our control risk assessment (as misstatements may be an indication of ineffective controls) Misstatements in key items are posted to the summary of audit differences as factual misstatements', '# SUBSTANTIVE TOD: Tests of details\n ## 2 Determining the extent of our tests of details\n ### 2.2 Key items\n #### 2.2.3 Identifying high value key items for liability and expense accounts\n We generally do not identify key items based on a quantitative testing threshold for liability or expense accounts as our primary concern is with their completeness, and not their existence. Therefore, our criteria for selecting items to test may depend on other factors (e.g., we may select a sample of suppliers to send creditors confirmation requests based on the value of the purchase activity over the entire audit period). If we identify key items based on a testing threshold for liability or expense accounts to test for classification or valuation, we may use the same testing thresholds as for asset accounts.\nHowever, if we design a test for completeness that uses a reciprocal population (e.g., cash disbursements after the interim or balance sheet date), we reduce our testing thresholds to allow for the aggregation of small misstatements. Our testing for unrecorded liabilities may include the examination of expense postings or checks issued subsequent to the balance sheet date over a testing threshold to determine whether the related liabilities are recorded in the appropriate period (i.e., the population for detecting such understatements involves transactions that meet the criteria for being omitted from the account being tested).', '# SUBSTANTIVE TOD: Tests of details\n ## 2 Determining the extent of our tests of details\n ### 2.2 Key items\n #### 2.2.1 Determining scopes and thresholds for key items\n Key items are those that have a higher likelihood of misstatement, such as: Unusual items or transactions - refer to SUBSTANTIVE EXECUTE 1.2 Transactions recorded at or near the balance sheet or interim reporting date Related party transactions Higher value or older items as compared to other items in the population We use professional judgment and decide to select key items from a population based on factors such as: PCAOB AS 1105.25, PCAOB AS 2315.21 Our understanding of the entity’s business Our assessment of inherent risk and control risk Characteristics of the population being tested The identification of key items starts with the examination of the population to determine which transactions with specific characteristics have a higher risk of material misstatement and have different characteristics from the rest of the population. Because different risks may exist for the income statement and the balance sheet, our considerations of qualitative factors and thresholds for key items may vary across significant accounts. We use our understanding of the business and the results of analytical procedures to help identify the entity’s key customers and those whose transactions with the entity represent greater risks (e.g., a key customer whose credit rating has recently been downgraded).\n', '# SAMPLE: 4 Sampling for tests of details\n ## 4.5 Determine sample size\n ### 4.5.2 Judgmental sample size determination\n When using judgmental sampling, we apply professional judgment to determine sample sizes for tests of details. We consider factors such as our understanding of the entity’s business, preliminary assessments of inherent and control risks and the characteristics of the population being tested. As the purpose of sampling is to provide a reasonable basis for us to draw conclusions about the population from which the sample is selected, it is important that we judgmentally determine an appropriate sample size and then select sampling units without bias so that they are representative of the population. Conclusions can then be drawn about the population on a judgmental basis. There are many judgments that enter into the determination of sample sizes; accordingly, when using judgmental sampling there is no exact answer as to what the correct sample size is for a particular test. We consider the factors in SAMPLE 4.4 for tests of details and apply professional judgment in determining our sample size. We also consider the amount of assurance required from our sample in view of our CRA and the audit evidence obtained from our substantive procedures, including primary substantive procedures. The Audit Risk Model discussed in STRATEGY 4 [ Pre Dec 2022: STRATEGY 1.2] provides guidance on the relationship between inherent risk, control risk and detection risk. When determining a sample size judgmentally, we document the basis on which we determined the judgmental sample to be appropriate. In addition, we document the factors that influence our sample size ( SAMPLE 4.4) which are: The CRA TE compared to the population value that we are testing The level of audit evidence we have obtained or expect to obtain from other substantive procedures Our expectation of misstatements', ' # SUBSTANTIVE TOD: Tests of details\n ## 2 Determining the extent of our tests of details\n ### 2.2 Key items\n #### 2.2.1 Determining scopes and thresholds for key items\n If a very large number of key items are identified, that is generally an indicator that the quantitative threshold is too low and those items may not be different enough from other items in the population to be considered key items. We analyze the characteristics of the population in order to identify the items that are individually significant based on size, contain a relevant event and condition or are otherwise unusual and, therefore, are not representative of the remaining population. We keep in mind that quantitative thresholds are only one of the factors we consider to identify key items. If we set our testing threshold above TE, we consider documenting our rationale for doing so.', ' # SAMPLE: 4 Sampling for tests of details\n ## 4.8 Evaluate and conclude on the sample results\n ### 4.8.4 Conclude on sample results\n #### 4.8.4b Conclude on random samples\n As the total uncorrected misstatement approaches TE, the likelihood that the population is materially misstated increases. We consider the following general guidelines: If the total uncorrected misstatement is low relative to tolerable error (e.g., less than 30% of TE) and our other procedures support our conclusions, we typically would not perform any additional procedures and can conclude that the sample results support the conclusion that the population is not misstated by more than TE. If the total uncorrected misstatement is large relative to TE (e.g., exceeds 50% of TE), the sample results most likely do not support the recorded amount of the population. It may not be appropriate to continue with our planned audit strategy as the total uncorrected misstatement is large in comparison to TE. Therefore, in these situations we request management to investigate identified misstatements and the potential for further misstatements in the account balance. If the total uncorrected misstatement is between 30% to 50% of TE, it is likely that further work needs to be performed to determine if we can conclude that the sample results support the conclusion that the population is not misstated by more than TE. We exercise professional judgment to determine if the sample results support our conclusion. In making this determination, we consider: Sampling risk (i.e., the risk that such a result may be obtained even though the true monetary misstatement for the population exceeds TE) Other misstatements identified during the audit The results of our key item testing The persuasiveness of the sample results considering our expectations (e.g., errors in processing were expected) Other procedures we have performed that provide audit evidence about the population In this case, we consider whether additional procedures are required to allow us to determine that the sample provides a reasonable basis for conclusions about the population that we tested. In making this determination, we consider if we have obtained coverage from key item testing. Although our tests of key items are not representative of the population, we consider the results of our tests of key items in determining if the sample provides a reasonable basis for conclusions about the population (i.e., if we find errors in key items, we may be more likely to find errors in the remainder of the population). In situations where we have not performed any key item testing (i.e., no key item coverage), we will be less likely to be able to reach a conclusion that the sample provides a reasonable basis for conclusions about the population that we tested. Additional procedures we may perform include: Requesting that management investigate identified misstatements and the potential for further misstatements in the account balance Expanding our key item coverage by reducing our testing threshold Expanding our representative sample to obtain additional audit evidence (expanding our sample is only a viable option if our hypothesis remains that the account balance is substantially recorded correctly after understanding the cause of any misstatements) Switching to a different sampling strategy (i.e., variables estimation sampling) In all situations, we request management to correct any key item misstatements (factual misstatements) and we post the projected misstatement above our SAD nominal amount to our summary of audit differences. We follow the guidance in MISSTATE 4.11 to evaluate and conclude on uncorrected misstatements.', ' # APM EDUCATION 2.3 Policy FAQs\n ## 7. Americas - I completed foundation learning in EY Leads in 2018/2019. Why do my completions not show in SuccessFactors?\n While EY Leads learning history was migrated into SuccessFactors there were variations in how the item details were carried across. As a result, there may be instances where EY Leads completions are not credited in the SuccessFactors CBJ. If you completed a foundation item in EY Leads in 2019, but you are not seeing a credit for it in SuccessFactors, then you should contact your local learning team to request an exemption from the relevant foundation learning item. If you had previously complied with US for non-US jurisdiction requirements but did not comply with 2019 cycle requirements, then the gap year guidance is applicable. (September 2020)', ' # SQM ROLES: Assignment of system of quality management roles and responsibilities\n ## Appendix 1 - Illustrative Country SQM representation language\n Country Independence Leader I confirm, to the best of my knowledge and belief, that: I understand the objectives and requirements of International Standard on Quality Management 1 and have fulfilled my SQM-related responsibilities. I have reviewed and agree with any findings or deficiencies in design, implementation and operation of the Country Independence-owned SQM key controls. I have reviewed and approved the effectiveness of the actions included in any Country Independence SQM Quality Improvement Plans and reviewed progress against the actions included in the Country Independence SQM Quality Improvement Plans. [Signature] Individual(s) with operational responsibility I confirm, to the best of my knowledge and belief, that: I understand the objectives and requirements of International Standard on Quality Management 1 and have fulfilled my SQM-related responsibilities. I understand all attestations made by individuals that are leaders of an: (1) EY Function; (2) Service Line functions that enable or monitor quality; and (3) EY Service Lines and made inquiries or performed other procedures, as appropriate, related to any comments made in their attestations. For control(s) for which I am the Control Owner, I understand and have fulfilled my Control Owner responsibilities and completed my Control Owner certification. I have reviewed and agree with the results of the SQM monitoring activities, including the analysis of findings to identify deficiencies (if applicable). I have reviewed and approved the effectiveness of the actions included in any SQM Quality Improvement Plans and reviewed progress against the actions included in the SQM Quality Improvement Plans. I have reviewed the Country SQM Annual Evaluation Report in its entirety. I recommend the SQM Annual Evaluation Conclusions for the Member Firms as stated in the table above. [Signature] Individual(s) with operational responsibility for monitoring I confirm, to the best of my knowledge and belief, that: I understand the objectives and requirements of International Standard on Quality Management 1 and have fulfilled my SQM-related responsibilities. I understand all attestations made by individuals that are leaders of a: (1) EY Function; (2) Service Line functions that enable or monitor quality; and (3) EY Service Lines and made inquiries or performed other procedures, as appropriate, related to any comments made in their attestations. For control(s) for which I am the Control Owner, I understand and have fulfilled my Control Owner responsibilities and completed my Control Owner certification. I have reviewed and approved the results of the SQM monitoring activities, including the analysis of findings to identify deficiencies (if applicable). I have reviewed and monitored the effectiveness of the actions included in any SQM Quality Improvement Plans. I have reviewed the Country SQM Annual Evaluation Report in its entirety. I concur with the SQM Annual Evaluation Conclusions for the Member Firms as stated in the table above. [Signature]'] | How do I identify a key item in my population? |
| ['# SAMPLE: 4 Sampling for tests of details\n ## 4.8 Evaluate and conclude on the sample results\n ### 4.8.1 Determine the nature and cause of misstatements\n #### 4.8.1a Misstatements that are not representative of the population\n If we conclude, based on our investigation of the nature and cause of a misstatement, that the misstatement is not representative of the population, we design an alternative audit strategy to test the items that are not representative of the population. Our audit strategy will depend on whether the misstatement contains a common feature or is an anomaly. Misstatements that contain a common feature If we determine the identified misstatements contain a common feature (e.g., type of transaction, location, product line or period of time), we identify all items in the population that possess the common feature and extend audit procedures to those items.\nWhen it is possible to contain a misstatement with a common feature to a distinct sub-population, we divide the initial sampling population into two sub-populations: one containing the items with the common feature; the second containing the remainder of the population. The two sub-populations are then evaluated separately. For the sub-population containing the remainder of the population, we determine whether we have sufficient appropriate audit evidence to conclude. If we do not identify any further misstatements, we may be able to conclude the remaining sample is sufficient and representative of the sub-population. If we identify other misstatements in either population, we determine if the misstatements are representative of the initial sampling population, a common feature or an anomaly (refer to SAMPLE 4.8.1). If we determine the other misstatements are representative, we evaluate them across the initial sampling population. For the sub-population containing the common feature, we ask the entity to identify all items related to the common feature and take appropriate actions. If the entity identifies and corrects all the items related to the common feature, we perform procedures to verify that there are no further misstatements in the corrected sub-population. We decide on one of the following approaches to obtain sufficient appropriate audit evidence over the corrected sub-population: Test 100% of the items that contain the common feature Test a sample or key items from the sub-population Perform other substantive procedures (e.g., substantive analytical procedure) There may be situations when the entity decides on an alternative approach (i.e., instead of identifying and correcting all items that relate to the common feature) by performing an analysis of the cause of the misstatement. Based on the results of the analysis, the entity may: Conclude that the effect of the common feature is immaterial. In this case, we perform procedures to evaluate the appropriateness of the conclusions reached. Determine that it is sufficient to identify and correct only some of the items related to the common feature. In this case, we perform procedures to evaluate management’s approach, test the items corrected by the entity and evaluate the appropriateness of the conclusions reached. The approach we take depends on the facts and circumstances of the items that contain the common feature. However, we need to carefully evaluate the cause of the misstatement and how the entity has corrected it before concluding which approach for these items is the appropriate audit strategy. We keep in mind that such misstatements may be intentional and may indicate the possibility of fraud.', ' # SAMPLE: Appendix 1 Audit risk tables\n ## Appendix 1.1 Appropriateness of the ARTs\n The first decision in using the ARTs is whether they are appropriate to the type of audit procedures being performed. The ARTs are appropriate when we have a homogenous population (i.e., that the characteristics of each item in the population are similar and therefore the risk associated with the population is the same - refer to SAMPLE 4.3) and we want to draw a conclusion on the monetary value of that population. We use the ARTs to determine our sample size when we: Perform tests of details for existence Test the valuation of accounts We expect a low misstatement situation The ARTs are typically used for accounts that contain overstatement. However, in certain circumstances they can be used when our audit objective is to detect understatement. In order to use the ARTs for those accounts where our audit objective is to detect understatement, we use an independent related population (e.g., a complete population of cash disbursements subsequent to the accounting period end date or a complete population of supplier statements), to which we apply the ARTs to select our sample for testing, evaluate the overstatement of that population and thereby conclude on the understatement of the related population. We do not use the ARTs when: We are not testing a representative sample because our tests of key items, together with other substantive procedures, provide sufficient appropriate audit evidence for the assertion A threshold for selecting items is for a second or lower level of testing related to a given account Performing procedures at the entity’s request and a threshold is established for selecting items in areas that are not material to the financial statements We have assessed combined risk as high and we expect more than a few misstatements We are performing procedures on a sample of a sample ', ' # SAMPLE: 4 Sampling for tests of details\n ## 4.8 Evaluate and conclude on the sample results\n ### 4.8.2 Misstatements in key items\n If we identify a misstatement in our key items, we treat it as a factual misstatement. We do not project misstatements identified in key items as key items are not representative of the population. ISA 450.6, ISA 530.14, AICPA AU-C 450.06, AICPA AU-C 530.13, PCAOB AS 2315.26, PCAOB AS 2810.14 If we find misstatements in key items, we consider: The reason for the misstatement in the key item and determine whether this misstatement could occur within the whole population, including other key items Whether the design of our testing performed on the remaining population (i.e., other than key items) would identify whether errors similar in nature and type to the ones we discovered in our key item testing were also present in the remaining population When our testing on the remaining population is designed to identify similar errors, and we identify such errors when performing our testing, we determine if the errors are the result of a representative error or common feature in accordance with SAMPLE 4.8.1a When our testing is not designed in a manner that would identify similar errors, we consider the need to obtain additional audit evidence in accordance with SAMPLE 4.8.1b to address the risk in the remaining population The effect of a misstatement in key items on our CRA, particularly on our control risk assessment (as misstatements may be an indication of ineffective controls) Misstatements in key items are posted to the summary of audit differences as factual misstatements', ' # SUBSTANTIVE TOD: Tests of details\n ## 2 Determining the extent of our tests of details\n ### 2.2 Key items\n We select our key items by identifying transactions or balances that: ISA 500.10, PCAOB AS 2315.21 Meet qualitative criteria that indicate that they are more likely to contain material misstatements (either individually or in the aggregate), or Are individually important because of their size Selective examination of key items from an account balance or significant class of transactions (SCOT) is often an efficient means of obtaining audit evidence. Key items are separated from other items in the population for testing because of their qualitative characteristics or high value, as they are not, by definition, representative of the entire population. Key items do not constitute audit sampling because the results of procedures applied to key items cannot be projected to the entire population. We aggregate the evidence obtained from examining key items with additional substantive evidence addressing the same assertion, as described in SUBSTANTIVE EXECUTE 2.2, in order to conclude on the assertion. When our combined risk assessment (CRA) is ‘minimal’, examining key items may provide sufficient audit evidence so that there is little risk of the remaining items in the population containing a material misstatement. When our CRA is other than ‘minimal’, we may need additional audit evidence from other procedures to address the higher risk of material misstatement. We consider the need to obtain audit evidence regarding the remaining population (i.e., the full population less key items). The risk that the remaining population may contain a material misstatement is higher when the value of the remaining population increases relative to TE. When additional evidence is needed, we perform further substantive procedures (e.g., substantive analytical procedures or representative sampling) over the remaining population to allow us to reach a conclusion.', ' # 18.\tGeneral technology issues\n ## 18.7.\tA piece of evidence has disappeared from my engagement. What should I do?\n Please contact the Help Desk, as there could be many reasons for this problem. Do not attempt to solve the issue on your own as this could cause additional complications. (Nov 2015)', ' # 18.\tGeneral technology issues\n ## 18.6.\tI cannot see my changes in the current version of the document, what should I do?\n Please contact the Help Desk, as there could be many reasons for this problem. Do not attempt to make any further changes to the document or attempt to solve the issue on your own as this could cause additional complications. (Nov 2015)', ' # 11.\tConclude and archive\n ## 11.13.\t What should I do if I need to restore my engagement for AQR and I already have two versions restored?\n You will first need to delete one of the existing restored engagement. After that, you will be able to create a new restore. If you cannot delete one of the existing restored engagement, you should reach out to your Area Activation Network and they can assist you with getting a third restored engagement. (Nov 2019)', ' # 18.\tGeneral technology issues\n ## 18.8.\tI’m getting an error message on my screen that starts with “Error XXXX” (where XXXX represents a number). What should I do?\n You should contact the Help Desk if you get any error messages in EY Canvas. Prior to contacting the Help Desk, you should attempt to recreate your steps of how the error came about, and when possible take screenshots of the error. This will help the technician determine the cause of the error. (Nov 2015)', " # ISA 530 - AUDIT SAMPLING\n ## Definitions\n 5. For purposes of the ISAs, the following terms have the meanings attributed below: (a) Audit sampling (sampling) – The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population. (b) Population – The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions. (c) Sampling risk – The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure. Sampling risk can lead to two types of erroneous conclusions: (i) In the case of a test of controls, that controls are more effective than they actually are, or in the case of a test of details, that a material misstatement does not exist when in fact it does. The auditor is primarily concerned with this type of erroneous conclusion because it affects audit effectiveness and is more likely to lead to an inappropriate audit opinion. (ii) In the case of a test of controls, that controls are less effective than they actually are, or in the case of a test of details, that a material misstatement exists when in fact it does not. This type of erroneous conclusion affects audit efficiency as it would usually lead to additional work to establish that initial conclusions were incorrect. (d) Non-sampling risk – The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk. (Ref: Para A1) \xa0 (e) Anomaly – A misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population. (f) Sampling unit – The individual items constituting a population. (Ref: Para A2) (g) Statistical sampling – An approach to sampling that has the following characteristics: (i) Random selection of the sample items; and (ii) The use of probability theory to evaluate sample results, including measurement of sampling risk. A sampling approach that does not have characteristics (i) and (ii) is considered non-statistical sampling. (h) Stratification – The process of dividing a population into sub-populations, each of which is a group of sampling units which have similar characteristics (often monetary value). (i) Tolerable misstatement – A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population. (Ref: Para A3) (j) Tolerable rate of deviation – A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population.", ' # 18.\tGeneral technology issues\n ## 18.4.\tWhat do I do if I don’t have the right version of Doc Helper on my computer?\n The most recent version of Document Helper can be obtained from the ServiceNow Service Management website ( https://eyt.service-now.com/ey/). (May 2020)'] | What should I do if my population does not contain similar items |
| ['# 8-11 Update and evaluate controls\n ## 10 Evaluate deficiencies in internal control\n We determine whether, on the basis of the audit work performed, we have identified one or more deficiencies in internal control. ISA 265.7, AICPA AU-C 265.08 If we conclude that a control is not operating effectively and a control deficiency exists, we evaluate it to determine if it constitutes a significant deficiency (or material weakness if required to be communicated in the jurisdiction) that we need to communicate to management and those charged with governance. Refer to SOCD\xa01. We may identify deficiencies in: Design, when we confirm our understanding of controls through performing walkthrough procedures Operation, as we execute our tests of controls A deficiency in design exists when either: A control necessary to address a WCGW or IT risk is missing An existing control is inappropriately designed so that, even if it operates as designed, its objective will not be met (e.g., it will not prevent a misstatement occurring on a timely basis) A deficiency in operation exists when either: An appropriately designed control does not operate as intended The person performing the control does not possess the necessary authority, capabilities, competence or objectivity to do it effectively Generally, control exceptions indicate a deficiency in internal control, except in the following limited situations: Upon further evaluation, we determine it was not a deviation from the intended functioning of the control (i.e., we misinterpreted the exception) We obtain sufficient appropriate audit evidence by performing additional procedures, beyond inquiry, to conclude that the rate of exception in the functioning of the control is acceptable based on our understanding of its design (e.g., we extend the sample size for a random control exception, refer to CONTROLS\xa08.2a) \nFor integrated audits, in the limited circumstances when we conclude that a control exception is not considered a deficiency, we generally perform additional testing to conclude that the control is operating effectively, or the rate of exception is acceptable. PCAOB AS 2201.48\n\nFor integrated audits, we consider accumulating control exceptions determined not to be control deficiencies to facilitate audit executive review and determine that we adequately evaluated and documented each control exception. Such accumulation may include the control description, related SCOT, business unit/location, description of the exception and explanation why it is not a control deficiency. We include exceptions that we identified from our independent tests of controls, or from testing performed by management, internal audit or others.\nThe existence of effective compensating controls does not remove a control deficiency.', ' # SOCD : Evaluate control deficiencies\n ## Purpose\n We evaluate control deficiencies identified through our audit procedures to determine if they constitute a significant deficiency. We evaluate both identified deficiencies in the design of controls and in the operation of controls. Design deficiencies include those that are identified related to the appropriateness of the entity’s policies in each of the components of the system of internal control (refer to ELC [ Pre Dec 2022: ELC] and FSCP 6). In some jurisdictions, for example when reporting as an integrated audit under PCAOB standards, we also determine whether the control deficiency is a material weakness. Throughout EY GAM, we discuss identifying significant deficiencies and use the phrase “or material weakness if required to be communicated in the jurisdiction” to address these situations. We refer to local requirements when determining whether a control deficiency is a material weakness. We communicate significant deficiencies to management and those charged with governance, and when applicable in the jurisdiction, we communicate separately material weaknesses. For guidance on determining whether we have identified a control exception and whether it is a deficiency refer to CONTROLS 8 and CONTROLS 10. This topic provides requirements and guidance to determine whether a control deficiency constitutes a significant deficiency (or material weakness if required to be communicated in the jurisdiction).', '# SOCD : Evaluate control deficiencies\n ## 1 Significant deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)\n #### 1.1 Indicators of a material weakness\n In addition to the quantitative and qualitative factors discussed in SOCD 1, we consider indicators of material weaknesses in internal control when evaluating whether a control deficiency is a material weakness. Indicators of material weaknesses in internal control include: Identification of fraud, whether or not material, on the part of senior management Restatement of previously issued financial statements to reflect the correction of a material misstatement due to fraud or error Identification by us of a material misstatement of the financial statements under audit in circumstances that indicate that the misstatement would not have been detected by the entity’s internal control, and Ineffective oversight of the entity’s financial reporting and internal control by those charged with governance PCAOB AS 1305.05 When we evaluate the significance of a deficiency, or combination of deficiencies, in internal control over financial reporting, we determine the level of detail and degree of assurance that would satisfy prudent officials in the conduct of their own affairs that they have reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the applicable financial reporting framework. PCAOB AS 2201.70, AICPA AU-C 265.10 If we determine that the deficiency, or combination of deficiencies, would prevent prudent officials in the conduct of their own affairs from concluding that they have reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the applicable financial reporting framework, then we deem the deficiency, or combination of deficiencies, to be an indicator of a material weakness. PCAOB AS 2201.70, AICPA AU-C 265.10 \nGiven the high degree of judgment required, we are required to consult with the Regional PPD if any of the above circumstances are noted because they are indicators that a material weakness in internal control over financial reporting exists. Such consultation includes the effects on our report and the implications on client continuance. EY Policy These matters require consultation with the Regional PPD and should not be delegated to other partners within the PPD group assigned to the Region.\n\nThe following diagram can be used to assist in evaluating deficiencies as it graphically depicts the evaluation process required under PCAOB AS 2201:\n', '# SOCD : Evaluate control deficiencies\n ## 1 Significant deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)\nFor integrated audits, we include consideration of the entity’s interim financial statements in our evaluation of a material weakness.\nA control deficiency alone may not represent a significant deficiency (or material weakness if required to be communicated in the jurisdiction). However, a combination of deficiencies affecting the same significant account or disclosure, or relevant assertion, may increase the risk of material misstatement and give rise to a significant deficiency (or material weakness). \nWe determine whether individual control deficiencies that affect the same significant account or disclosure, relevant assertion or component of internal control individually or in combination result in a material weakness. PCAOB AS 2201.65\n\nWe, management, the internal audit function or other third parties may identify control deficiencies. Regardless of who identifies the control deficiency, we consider all control deficiencies accumulated in our evaluation. Our evaluation requires significant professional judgment and involves audit executives. We do not accumulate deficiencies identified by others that do not affect the identified significant accounts and disclosures and relevant assertions.\nThe severity of a deficiency depends on: Whether there is a reasonable possibility that the entity’s controls will fail to prevent, or detect and correct, a misstatement in an account or disclosure The magnitude of the potential misstatement resulting from the deficiency or deficiencies The severity of a deficiency does not depend on whether a misstatement actually has occurred but on whether there is a reasonable possibility that the entity’s controls will fail to prevent or detect and correct a misstatement of an account balance or disclosure. Significant deficiencies and material weaknesses may exist even though we have not identified misstatements during the audit. The evaluation of whether a deficiency in internal control presents a reasonable possibility that a misstatement may occur may be made without quantifying the probability of occurrence as a specific percentage or range.', '# SOCD : Evaluate control deficiencies\n ## 1 Significant deficiencies (or material weaknesses, if required to be communicated in the jurisdiction)\n When we identify one or more control deficiencies, we determine, on the basis of the audit procedures performed, whether individually or in combination, they constitute a significant deficiency (or material weakness if required to be communicated in the jurisdiction) in internal control. ISA 265.8, AICPA AU-C 265.09 \nWe evaluate the severity of all identified control deficiencies to reach an overall conclusion as to whether control deficiencies, individually or in combination, are significant deficiencies or material weaknesses as of the date of management’s assessment. We are not required to search for deficiencies that, individually or in combination, are less severe than a material weakness. However, as part of our responsibilities for communication with those charged with governance, we consider whether there are any deficiencies, or combinations of deficiencies, that have been identified during the audit that are significant deficiencies (refer to SOCD 4). PCAOB AS 2201.62\n As defined in the ISAs, a significant deficiency in internal control is a deficiency, or a combination of deficiencies, in internal control that, in our professional judgment, is of sufficient importance to merit the attention of those charged with governance. As defined in US auditing standards, a significant deficiency in internal control is a deficiency, or a combination of deficiencies, in internal control that, in our professional judgment, is less severe than a material weakness, yet is of sufficient importance to merit the attention of those charged with governance. As defined in US auditing standards, a material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the entity’s annual financial statements will not be prevented or detected on a timely basis.', " # 3E_3.5 Internal control report modifications [AICPA audits ending prior to 15 December 2021, All PCAOB audits]\n ## 3E_3.5 Non-Issuers Example 1 - Disclaimer of opinion on internal control over financial reporting- scope limitation\n Because of the matter described above, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. However, a material weakness has been identified. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's financial statements will not be prevented, or detected and corrected, on a timely basis. If one or more material weaknesses exist, a company's internal control over financial reporting cannot be considered effective. The following material weakness has been included in the accompanying [ title of management's report]. [ Identify the material weakness described in management's report and include a description of the material weakness, including its nature and its actual and potential effect on the presentation of the entity's financial statements issued during the existence of the material weakness.] In addition, we include the following sentence in the Report on Financial Statements section: We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the [ indicate year, e.g., “20X7”] financial statements, and this report does not affect such report on the financial statements. If, through the limited procedures we performed, we conclude that a material weakness exists that has not been identified by management, we indicate this fact in our report and we include a description of the material weakness: Material Weakness In performing our procedures, the following material weakness has been identified that was [ if management does not issue a report state, “not identified by management”, if management has issued a report but has not identified the material weakness state “not included in (title of management’s report)”]. [ Include a description of the material weakness, including its nature and its actual and potential effect on the presentation of the entity’s financial statements issued during the existence of the weakness.] A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s financial statements will not be prevented, or detected and corrected, on a timely basis. If one or more material weaknesses exist, a company's internal control over financial reporting cannot be considered effective. In addition, we include the following sentence in the Report on Financial Statements section: We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the [ indicate year, e.g., “20X7”] financial statements, and this report does not affect such report on the financial statements. ", '# 8-11 Update and evaluate controls\n ## 8 Address control exceptions\n ### 8.2 Determine audit response to control exceptions\nWhen we have identified a control deficiency, before concluding on an appropriate audit response, we consider each of the following: The nature and severity of the deficiency (e.g., do the facts and circumstances indicate that the deficiency could be a significant deficiency (or material weakness if required to be communicated in the jurisdiction) if not remediated) The nature of the control (e.g., manual or automated control) and the nature and timing of the remediation (e.g., was the deficiency identified late in the year, or was it identified early in the year but management failed to remediate it earlier) Whether we believe the control is operating effectively as of period end and whether the evidence we would obtain from a lower extent of testing provides a basis for such a conclusion If a remediated control would otherwise represent a material weakness, the CAML is available to assist the team in developing the appropriate remediation testing strategy.\nIf the identified control deficiency has been remediated prior to period end, it will not be evaluated further as part of our period end assessment of the effectiveness of internal control over financial reporting. However, if the control deficiency has not been remediated and tested before period end, we further evaluate the control deficiency to determine if it constitutes a significant deficiency (or material weakness). Even if a control is successfully remediated before period end, we reconsider our financial statement audit strategy because the control was not operating effectively throughout the entire audit period.\n\n', ' # INTEGRATED AUDIT - Reports on internal control over financial reporting [effective for AICPA audits of periods ending on or after 15 December 2021]\n ## 5 Internal control report modifications\n ### 5.1 One or more material weaknesses exist\n #### 5.1.1 Effect of material weakness on prior periods\n Management may determine that a material weakness identified in the current year also was present in one or more previous assessment periods. When describing the potential effects on the financial statements issued during the existence of the material weakness, it is not necessary or appropriate to describe the effects of the material weakness on the earlier periods unless there also is a restatement of the prior year financial statements that coincides with the discovery of the material weakness. The annual assessment of internal control over financial reporting is not intended to be a comparative presentation and the current year assessment in effect supersedes the previous assessment. #### 5.1.2 Management unable to assess controls\n Management’s inability to assess certain controls over financial reporting that should have been included in management’s assessment represents a control deficiency in the control environment and monitoring components of internal control over financial reporting that we must evaluate as to significance. If the transactions or balances subject to controls that management is unable to assess are material to the entity’s financial statements, we ordinarily would determine that this control deficiency represents a material weakness. Refer to INTEGRATED AUDIT 5.3.1 for further requirements and guidance. #### 5.1.3 Management remediates material weakness too late to test\n We may encounter a situation where management identifies and remediates a material weakness too late for them or us to test the new control prior to the filing date. We would conclude that, absent evidence that the control has been remediated, the material weakness still exists. If management concludes that internal control is ineffective and appropriately identifies the material weakness in its report, we issue an adverse opinion on the effectiveness of internal control over financial reporting. Refer to Appendix 2.2.4 – INTEGRATED AUDIT – Illustration 9 for an example report.', ' # 3.6 Adverse opinion on the effectiveness of internal control over financial reporting [AICPA audits ending prior to 15 December 2021, All PCAOB audits]\n ## 3.6.1 General guidance\n ### 3.6.1.1 Effect of material weakness on prior periods\n Management may determine that a material weakness identified in the current year also was present in one or more previous assessment periods. When describing the potential effects on the financial statements issued during the existence of the material weakness, it is not necessary or appropriate to describe the effects of the material weakness on the earlier periods unless there also is a restatement of the prior year financial statements that coincides with the discovery of the material weakness. The annual assessment of internal control over financial reporting is not intended to be a comparative presentation and the current year assessment in effect supersedes the previous assessment. ### 3.6.1.2 Management unable to assess controls\n Management’s inability to assess certain controls over financial reporting that should have been included in management’s assessment represents a control deficiency in the control environment and monitoring components of internal control over financial reporting that we must evaluate as to significance. If the transactions or balances subject to controls that management is unable to assess are material to the entity’s financial statements, we ordinarily would determine that this control deficiency represents a material weakness. Refer to RM 3.5.3.2 Scope limitations imposed by circumstances for further requirements and guidance. ### 3.6.1.3 Management remediates material weakness too late to test\n We may encounter a situation where management identifies and remediates a material weakness too late for them or us to test the new control prior to the filing date. We would conclude that, absent evidence that the control has been remediated, the material weakness still exists. If management concludes that internal control is ineffective and appropriately identifies the material weakness in its report, we issue an adverse opinion on the effectiveness of internal control over financial reporting.\xa0Refer to [Issuers] RM 3E_3.6 Issuers Example 1 [Issuers] [Non-Issuers] RM 3E_3.6 Non-Issuers Example 1 [Non-Issuers] for an example report.', ' # Amendments to Rules Regarding Management\'s Report on Internal Control Over Financial Reporting, Release Nos. 33-8809; 34-55928; FR-76, 6/27/2007\n ## I. BACKGROUND\n 3. Final Rule After consideration of the comments received, we have determined that it is appropriate for the Commission\'s rules to include the definition of material weakness since it is an integral term associated with Sarbanes-Oxley and the Commission\'s\xa0 implementing rules. Management\'s disclosure requirements with respect to ICFR are predicated upon the existence of a material weakness; therefore, we agree with the commenters\' suggestion that our rules should define this term, rather than refer to auditing literature. As a result, we are amending Exchange Act Rule 1 2b-2 and Rule 1- 02 of Regulation S-X to define the term material weakness. We have decided to adopt the material weakness definition substantially as proposed. The Commission has determined that the proposed material weakness definition appropriately describes those conditions in ICFR that, if they exist, should be disclosed to\xa0 investors and should preclude a conclusion that ICFR is effective. Therefore, our final rules define a material weakness as a deficiency, or a combination of deficiencies, in ICFR such that there is a reasonable possibility that a material misstatement of the registrant\'s annual or interim financial statements will\xa0 not be prevented or detected on a timely basis. Exchange Act Rule 1 2b-2 and Rule 1-02(p) of Regulation S-X.\xa0\xa0 We anticipate that the PCAOB\'s auditing standards will also include this definition of material weakness. After consideration of the proposed alternatives to the "reasonable possibility" standard in the proposed definition of material weakness, we decided not to change the proposed standard. Revisions that have the effect of increasing the likelihood\xa0 (that\xa0 is, risk) of a material misstatement in a company\'s financial reports that can exist before being disclosed could give rise to questions about the meaning of a disclosure that ICFR is effective and whether the threshold for "reasonable assurance" is\xa0 being\xa0 lowered. Moreover, we do not believe improvements in efficiency arising from revisions to the likelihood element would be significant to the overall ICFR evaluation effort, due, in part, to our view that the effort evaluating deficiencies would be similar\xa0 under the alternative standards (for example, "reasonable possibility" as compared to "reasonable likelihood"). Lastly, we do not believe the volume of material weakness disclosures, which has declined each year since the initial implementation of Section 404 of SarbanesOxley, is too high such that investors would benefit from a reduction in disclosures that would result from a higher likelihood threshold. Regarding the reference to interim financial statements in the definition of material weakness, while we believe annual materiality considerations are appropriate when making judgments about the nature and extent of evaluation procedures, we believe\xa0 that the judgments about whether a control is adequately designed or operating effectively should consider the requirement to provide investors reliable annual and quarterly financial reports. Moreover, if management\'s annual evaluation identifies a\xa0 deficiency that poses a reasonable possibility of a material misstatement in the company\'s quarterly reports, we believe management should disclose the deficiency to investors and not assess ICFR as effective. As such, we have not removed the reference to\xa0 interim financial statements from the definition of material weakness. In response to the comments regarding the need for the Commission to define the term "significant deficiency," we are seeking additional comment on a definition of that term as part of a separate release issued in the Federal Register.'] | if we identify an exception, hoow can we determine that the exception falles under deficiency, weakness or material weakness |
* Loss: [MatryoshkaLoss](https://sbert.net/docs/package_reference/sentence_transformer/losses.html#matryoshkaloss) with these parameters:
```json
{
"loss": "MultipleNegativesRankingLoss",
"matryoshka_dims": [
768,
512,
256,
128,
64
],
"matryoshka_weights": [
1,
1,
1,
1,
1
],
"n_dims_per_step": -1
}
```
### Training Hyperparameters
#### Non-Default Hyperparameters
- `eval_strategy`: steps
- `per_device_train_batch_size`: 16
- `per_device_eval_batch_size`: 16
- `num_train_epochs`: 1
- `warmup_ratio`: 0.1
- `fp16`: True
- `batch_sampler`: no_duplicates
#### All Hyperparameters
Click to expand
- `overwrite_output_dir`: False
- `do_predict`: False
- `eval_strategy`: steps
- `prediction_loss_only`: True
- `per_device_train_batch_size`: 16
- `per_device_eval_batch_size`: 16
- `per_gpu_train_batch_size`: None
- `per_gpu_eval_batch_size`: None
- `gradient_accumulation_steps`: 1
- `eval_accumulation_steps`: None
- `learning_rate`: 5e-05
- `weight_decay`: 0.0
- `adam_beta1`: 0.9
- `adam_beta2`: 0.999
- `adam_epsilon`: 1e-08
- `max_grad_norm`: 1.0
- `num_train_epochs`: 1
- `max_steps`: -1
- `lr_scheduler_type`: linear
- `lr_scheduler_kwargs`: {}
- `warmup_ratio`: 0.1
- `warmup_steps`: 0
- `log_level`: passive
- `log_level_replica`: warning
- `log_on_each_node`: True
- `logging_nan_inf_filter`: True
- `save_safetensors`: True
- `save_on_each_node`: False
- `save_only_model`: False
- `restore_callback_states_from_checkpoint`: False
- `no_cuda`: False
- `use_cpu`: False
- `use_mps_device`: False
- `seed`: 42
- `data_seed`: None
- `jit_mode_eval`: False
- `use_ipex`: False
- `bf16`: False
- `fp16`: True
- `fp16_opt_level`: O1
- `half_precision_backend`: auto
- `bf16_full_eval`: False
- `fp16_full_eval`: False
- `tf32`: None
- `local_rank`: 0
- `ddp_backend`: None
- `tpu_num_cores`: None
- `tpu_metrics_debug`: False
- `debug`: []
- `dataloader_drop_last`: True
- `dataloader_num_workers`: 0
- `dataloader_prefetch_factor`: None
- `past_index`: -1
- `disable_tqdm`: False
- `remove_unused_columns`: True
- `label_names`: None
- `load_best_model_at_end`: False
- `ignore_data_skip`: False
- `fsdp`: []
- `fsdp_min_num_params`: 0
- `fsdp_config`: {'min_num_params': 0, 'xla': False, 'xla_fsdp_v2': False, 'xla_fsdp_grad_ckpt': False}
- `fsdp_transformer_layer_cls_to_wrap`: None
- `accelerator_config`: {'split_batches': False, 'dispatch_batches': None, 'even_batches': True, 'use_seedable_sampler': True, 'non_blocking': False, 'gradient_accumulation_kwargs': None}
- `deepspeed`: None
- `label_smoothing_factor`: 0.0
- `optim`: adamw_torch
- `optim_args`: None
- `adafactor`: False
- `group_by_length`: False
- `length_column_name`: length
- `ddp_find_unused_parameters`: None
- `ddp_bucket_cap_mb`: None
- `ddp_broadcast_buffers`: False
- `dataloader_pin_memory`: True
- `dataloader_persistent_workers`: False
- `skip_memory_metrics`: True
- `use_legacy_prediction_loop`: False
- `push_to_hub`: False
- `resume_from_checkpoint`: None
- `hub_model_id`: None
- `hub_strategy`: every_save
- `hub_private_repo`: False
- `hub_always_push`: False
- `gradient_checkpointing`: False
- `gradient_checkpointing_kwargs`: None
- `include_inputs_for_metrics`: False
- `eval_do_concat_batches`: True
- `fp16_backend`: auto
- `push_to_hub_model_id`: None
- `push_to_hub_organization`: None
- `mp_parameters`:
- `auto_find_batch_size`: False
- `full_determinism`: False
- `torchdynamo`: None
- `ray_scope`: last
- `ddp_timeout`: 1800
- `torch_compile`: False
- `torch_compile_backend`: None
- `torch_compile_mode`: None
- `dispatch_batches`: None
- `split_batches`: None
- `include_tokens_per_second`: False
- `include_num_input_tokens_seen`: False
- `neftune_noise_alpha`: None
- `optim_target_modules`: None
- `batch_eval_metrics`: False
- `batch_sampler`: no_duplicates
- `multi_dataset_batch_sampler`: proportional