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procedures involving audit sampling. When the auditor decides to use audit sampling, the same underlying principles apply in both large and small entities. The auditor selects sample items in such a way that the sample can be expected to be representative of the population.
AUS 526: Auditing Fair Value Measurements and Disclosures
.80 In accordance with paragraph .04 of AUS 526, management is responsible for making the fair value measurements and disclosures included in the financial report. Management is also responsible for establishing an accounting and financial reporting process for determining the fair value measurements and disclosures, selecting appropriate valuation methods, identifying and adequately supporting any significant assumptions used, preparing the valuation and ensuring
that the presentation and disclosure of the fair value measurements are in accordance with the entity’s identified financial reporting framework.
.81 According to paragraph .11 of AUS 526, in some cases, the measurement of fair value and therefore the process set up by management to determine fair value may be simple and reliable. For example, management may be able to refer to published price quotations to determine fair value for marketable securities held by the entity. Some fair value measurements, however, are inherently more complex than others and involve uncertainty about the occurrence of future events or their outcome, and therefore assumptions that may involve the use of judgement need to be made as part of the measurement process.
.82 The owner-manager of a small entity may not have the expertise and experience necessary to fulfill the responsibilities referred to in paragraph .80 for fair value measurements other than those based on published price quotations. The auditor recognises that the use of an expert, such as an independent valuer, may represent a significant cost to the small entity. However, if considered necessary in the circumstances, the auditor recommends to the owner-manager the use of an expert.
.83 Any assistance provided by the auditor may create threats to the independence of the auditor. The auditor is to refer to paragraphs 2.71 to 2.76 of Professional Statement F1 “Professional Independence” for guidance on valuation services that may pose a threat and the potential safeguards that can be considered.
.84 Paragraph .63 of AUS 526 requires the auditor to obtain written representations from management regarding the reasonableness of significant assumptions, including whether they appropriately reflect management’s intent and ability to carry out specific courses of action on behalf of the entity where relevant to the fair value measurements or disclosures. Because of the reasons set out in paragraph .82, the owner-manager may be of the opinion that it is not possible to provide the required representation. The responsibility for making the fair value measurements and disclosures included in the financial report rests with the owner-manager. If the owner-manager refuses to provide the required representation, this constitutes a scope limitation and the auditor expresses an “except for” or an inability to form an opinion.
AUS 518: Related Parties
.85 Significant transactions are often entered into between the small entity and the owner-manager, or between the small entity and entities related to the owner-manager. Small entities seldom have sophisticated policies and codes of conduct on relate