34. The different components of ECL may be subject to different types of inherent risk factors. The Committee expects that the external auditor will consider, at a minimum, the key components of ECL in order to determine the sources and levels of the inherent risks of material misstatement. This consideration is required so that the external auditor can fully assess the ROMM of the ECL estimate and evaluate the design of controls and determine whether they have been implemented where ROMM is significant, and can determine how best to address those risks.

(a) Forecasts and FLI

(i) The risks of material misstatement and their significance

35. The ECL estimate should be measured in a way that reflects an unbiased and probability-weighted estimate of credit losses. It will reflect inputs that typically include, among others, assumptions about future values of economic variables and potential recovery strategies. There is a high degree of estimation uncertainty and complexity given that the forward-looking inputs into the ECL estimate are interrelated and highly subjective [ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures, paragraph A72.]. The nature of FLI is such that it is not precisely knowable before it occurs - only estimable. Nevertheless, the FLI-related estimates and related disclosures should use reasonable and supportable information about past, current and future economic conditions, that is available without undue cost or effort. Forecasts and FLI that are not reasonable nor supportable can lead to a material misstatement in the ECL estimate.