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obtaining an understanding of the methods used by the management with reference to the relevant
Standards on Auditing.
Answer The auditors, GHK Associates wanted to ensure and obtain sufficient appropriate audit evidence
regarding the presentation and disclosure of segment information in accordance with the applicable
financial reporting framework by obtaining an understanding of the methods used by management in
determining segment information. SA 501 guides in this regard. As per SA 501- “Audit Evidence—
Specific Considerations for Selected Items”, example 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:
(i) Sales, transfers and charges between segments, and elimination of inter-segment amounts.
(ii) Comparisons with budgets and other expected results, for example, operating profits as a
percentage of sales.
(iii) The allocation of assets and costs among segments.
(iv) Consistency with prior periods, and the adequacy of the disclosures with respect to
inconsistencies.
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