| 145. | The main purpose of the disclosure of market price risk information is to provide users of an entity's financial statements with a better understanding of the relationship between the entity's profitability and its exposure to risk. For example, an increase in profitability may be achieved by taking on increased risk. IFRS 7/FRS 29 paragraph 40(c) requires disclosure of any changes in the methods and assumptions used and the reasons for the changes. Therefore, the auditor considers the consistency of the method, the main assumptions and parameters with those used in previous years. |
| 146. | If the method used for developing the market risk information is also used in the entity's risk management system, modifications will be made to the method as the need arises. If the entity performs its own backtesting procedures, this may lead to modification of, for example, the algorithm used, the assumptions and parameters specified or the parts of the trading book covered. Where modifications have been made, the auditor considers their effect on the market risk measures and whether appropriate disclosures about the changes have been made. |
| 147. | In some cases, re-statement may not be possible if the relevant data for the previous year cannot be constructed and in this case the auditor considers whether the disclosures provide sufficient information about the nature and extent of any change in the entity's risk profile. For example, as well as providing the current year figure on the 'new' basis, it may be relevant to show both the current year and the previous year figure on the 'old' basis. In all such cases, the auditor considers whether the disclosures contain sufficient narrative explanation of the change. |
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