51. An auditor's understanding of an entity's internal control system is important as it contributes to the external auditor's identification of risks of material misstatement (taking account of inherent risks and related control risk). Due to the nature and complexity of the ECL estimate, the assessment of the design and operating effectiveness of internal controls over the key components of ECL is an important piece of audit evidence, particularly given that the external auditor will want to rely on those controls as substantive procedures alone will usually not provide sufficient appropriate audit evidence when ECL is audited at internationally active banks. The external auditor should also consider the timing of the testing of the controls they plan to rely on because that may impact the other audit work needed. For the key components, the following are important considerations:

• well-documented oversight and governance over management's financial reporting process, including disclosure. A strong governance process is needed to ensure the judgmental decisions are well controlled such that the disclosures are complete, accurate, in accordance with the accounting framework, relevant to the bank's portfolios and free from bias;

• controls over the identification of the need for and use of specialised skills or knowledge over the accounting estimate, including the use of management's experts;