Annual Audit Manual

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7551 Segment information
Apr-2018

In This Section

Audit procedures on segment information

Overview

This topic explains:

  • Audit procedures on segment information.
  • How to document segment information audit procedures.

CAS Objective

The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework (CAS 501.3(c)).

Audit procedures on segment information

CAS Requirement

The auditor shall obtain sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by (CAS 501.13):

(a) Obtaining an understanding of the methods used by management in determining segment information, and

i) Evaluating whether such methods are likely to result in disclosure in accordance with the applicable financial reporting framework; and

ii) Where appropriate, testing the application of such methods; and

(b) Performing analytical procedures or other audit procedures appropriate in the circumstances.

CAS Guidance

Depending on the applicable financial reporting framework, the entity may be required or permitted to disclose segment information in the financial statements. The auditor’s responsibility regarding the presentation and disclosure of segment information is in relation to the financial statements taken as a whole. Accordingly, the auditor is not required to perform audit procedures that would be necessary to express an opinion on the segment information presented on a stand alone basis (CAS 501.A26).

Depending on the circumstances, examples of matters that may be relevant when obtaining an understanding of the methods used by management in determining segment information and whether such methods are likely to result in disclosure in accordance with the applicable financial reporting framework include (CAS 501.A27):

  • Sales, transfers and charges between segments, and elimination of inter-segment amounts.
  • Comparisons with budgets and other expected results, for example, operating profits as a percentage of sales.
  • The allocation of assets and costs among segments.
  • Consistency with prior periods, and the adequacy of the disclosures with respect to inconsistencies.

OAG Guidance

Consistent with the management approach to accounting for segments, audit procedures primarily are directed at obtaining sufficient appropriate audit evidence to support conclusions that:

  • the segment information disclosed is the same information that is used by the chief operating decision maker,

  • the basis on which the information was prepared is the basis disclosed and the disclosures are adequate,

  • aggregation criteria have been appropriately applied, if applicable,

  • all significant segment items are reconciled to consolidated totals in the financial statements.

Procedures for testing segment information are included within the procedure Financial statements related procedures.