Auditing and Assurance Standards Board
Chairman’s report
Introduction
The Auditing and Assurance Standards Board (AUASB) was reconstituted as an independent statutory body under the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 with effect on 1 July 2004. The Financial Reporting Council (FRC) is responsible for oversight of the AUASB and for approving its strategic direction.
Role and mission of the AUASB
The mission of the AUASB is to develop, in the public interest, high quality standards and related guidance for auditors and providers of other assurance services, as a means to enhance the relevance and reliability of information provided to users of audit and other assurance services. It is essential to the position of the AUASB as a leading standard-setting body, that its Auditing and Assurance Standards and related guidance remain up-to-date and exhibit a clear public interest focus.
Auditing is a public interest activity and the work of the AUASB in setting Auditing and Assurance Standards forms part of the corporate governance framework in Australia. In developing standards and related guidance, the AUASB has due regard for the public interest. The importance of sound public interest oriented Auditing and Assurance Standards is necessary to reinforce the credibility of the auditing process for those who use audited financial information.
Board appointments and changes during 2004-05
The AUASB comprises an independent part-time Chairman (appointed by the Federal Treasurer) and ten part-time members (appointed by the FRC). The members appointed by the FRC over the past year have consisted of five members from public practice, two members from the public sector, two members from academia, and one member representing users.
The members of the reconstituted AUASB were appointed by the FRC on 12 August 2004, immediately following the announcement of my appointment as Chairman. Subsequently, Ms Dianne Azoor Hughes, Mr Kim Smith, Mr Jon Tyers were appointed to the AUASB at the commencement of 2005, replacing Mr Gavin Campbell, Associate Professor Grant Gay and Mr Paul Shannon, whose terms expired at the end of 2004. See Appendix C for full details of AUASB members and their terms of appointment.
AUASB strategic direction
The combination of several key considerations have provided the reconstituted AUASB with an opportunity to refine the structure and content of Australian Auditing and Assurance Standards to achieve high quality standards and promote audit quality, whilst contributing to a single set of auditing and assurance standards accepted world-wide. These considerations include:
- the need for the reconstituted AUASB to review within a two year period from the date of its inception, existing Australian Auditing Standards issued prior to 1 July 2004, for their appropriateness as delegated legislation under the Corporations Act 2001;
- ideally maintaining a policy of conformity with the structure and content of pronouncements of the IAASB; and
- other international developments, which offer the potential to strengthen Auditing Standards.
In September 2004, the AUASB released a Strategic Directions Paper, which outlined the strategies that the AUASB considers appropriate for the setting of auditing and assurance standards and the development of guidance. This paper was provided for consideration by the FRC, which then proceeded to seek public comments in late 2004 on the key proposals relating to the AUASB’s proposed strategies.
Following this public comment period and after further consultation with the AUASB, the FRC at its meeting on 4 April 2005, considered and approved the appropriate Strategic Direction for the AUASB in relation to its work programme and in particular, its approach to the setting of Australian Auditing Standards.
The FRC agreed that the following Strategic Direction be implemented by the AUASB going forward:
- The AUASB should develop Auditing Standards that have a clear public interest focus and are of the highest quality.
- The AUASB should use, as appropriate, the International Standards on Auditing (ISAs) of the IAASB as a base from which to develop Auditing Standards.
- The AUASB should make such amendments to ISAs as necessary to accommodate and ensure that Auditing Standards both exhibit and conform with the Australian regulatory environment and statutory requirements, including amendments as necessary for Auditing Standards to have the force of law and be capable of enforcement under the requirements of the Corporations Act 2001 by 30 June 2006.
- The process of developing Auditing Standards should include monitoring and reviewing auditing and assurance standards issued by other standard setting bodies in other national jurisdictions and considering other matters relevant to achieving the objectives of Part 12 of the ASIC Act. Consequently, where appropriate and considered to be in the public interest and necessary to producing standards of the highest quality, the AUASB should incorporate additional requirements in its Auditing Standards.
- The AUASB should continue to develop Auditing and Assurance Standards other than for historical financial information as well as developing and issuing other guidance on auditing and assurance matters, and may participate in audit research that is conducive to, and which significantly benefits, the standard-setting activities of the AUASB.
In addition, the FRC agreed that the AUASB should have regard to any programme initiated by the IAASB for the revision and enhancement of ISAs and make appropriate consequential amendments to Auditing Standards.
The AUASB has therefore revised its work programme to best reflect and implement its new Strategic Direction.
Reissuing Auditing Standards as legal instruments
The key aspect of the AUASB’s work programme in 2004-05, has been the preliminary analysis of the suitability of the structure and content of existing Auditing Standards for re-issuance as legal instruments, that is, statutory Auditing Standards. The AUASB has commenced a process of thorough review of pre-existing Auditing Standards issued prior to 1 July 2004, that were given interim endorsement prior to their re-issuance as statutory Auditing Standards in 2006.
This work has been necessary to ensure that the Auditing Standards are in a form that is legally enforceable as statutory standards, that they will meet the drafting requirements of the Legislative Instruments Act 2003, and that the requirements and guidance in the new standards will be unambiguous and clear. This is a major exercise that has occupied a considerable amount of AUASB’s time both during and in between its formal meetings.
The AUASB has decided to adopt a two-phase approach to the review and reissue of Corporate Auditing Standards:
Phase 1:
The drafting focus will be on
- the enforceability of ('black letter') mandatory obligations;
- clarifying implied obligations; and
- inclusion of improvements originating from other standard setting bodies.
The AUASB’s deadline of having its standards in place by 30 June 2006, will be met under this phase and proposed improvements to explanatory guidance will be accumulated for Phase 2.
The review of the 40 auditing standards by staff and the AUASB members, a 45 day public exposure, subsequent review of revised standards by the AUASB members, and finalisation of the auditing standards as legal instruments will be completed by 31 March 2006, with monitoring of the instruments when they are in Parliament during the remaining period to 30 June 2006.
Phase 2:
The drafting focus will be on reviewing Auditing Standards to improve quality, clarity, and presentation. Phase 2 will commence after the new Auditing Standards are in place for 1 July 2006, and in accordance with the AUASB’s priority. Phase 2 is an ongoing project dependent on the ‘Clarity of IAASB Standards’ project developments by the IAASB (see below) as well as other international standard setters.
The status of the 2004-05 AUASB Work Programme is reported in Appendix F. The AUASB’s standard setting priorities for the year ending 30 June 2006, have been approved by the FRC and are set out in Appendix F.
Relationship with the International Auditing and Assurance Standards Board
Consistent with its strategic direction, the reconstituted AUASB has continued, wherever possible, to use ISAs as a base for its proposed Auditing Standards, and in doing so seek to maintain conformity of its standards with those of the IAASB. The strong rationale for continuing with this policy is the existence of the IAASB as the major global principles-based auditing and assurance standards setting body and the significant strengthening of its public interest focus in recent years, reinforced through oversight of its activities by IFAC’s Public Interest Oversight Board.
The IAASB is currently pursuing a major exercise of reviewing its own auditing standards, through the ‘Clarity of IAASB Standards’ project. The objective of this project is primarily to address the distinction between requirements or obligations and explanatory material and the length and complexity of standards. This project is significant since it has major implications for Phase 2 of the strategy adopted by the AUASB in reviewing its Auditing Standards.
Membership of and input into the work of the IAASB is considered integral to the ability of the AUASB to continue as an effective national standard-setter, and is considered crucial to it maintaining and further developing the current body of auditing and assurance standards and related guidance, which is used by the Australian accounting profession. Traditionally, Australia has been regarded as an influential international contributor, through Australian representation on the IAASB, and the support provided by the AUASB to international standard-setting activities of the IAASB. AUASB member, Mr Ian McPhee, is also a member of the IAASB and its Steering Committee. Furthermore, AUASB Principal Executive, Mr Richard Mifsud has continued to serve as Mr McPhee’s IAASB technical advisor over the past year.
Facilities, technical support and resources
The AUASB moved into its new offices in November 2004. These facilities, which it occupies at Level 4, 530 Collins Street, Melbourne, as a co-tenant with the Australian Accounting Standards Board, should serve it well for the years ahead.
The AUASB is assisted by the technical and secretarial support that is provided by the Principal Executive and the technical and administrative staff of the AUASB. The AUASB has been extremely successful in recruiting a number of well qualified and experienced professional staff members, who commenced with the organisation at various stages during 2004-05. The work of the AUASB has also been assisted in some part, by the contributions of external working parties, which provided input to several projects being considered by the AUASB.
Acknowledgements
I would like to thank the members of the AUASB for their contributions over the past year. I especially would like to thank Mr Bob Sendt (Deputy Chairman) and Mr Ian McPhee (IAASB Member) for their assistance in carrying out their respective roles over this period.
I would also like to thank the FRC and its Chairman, Mr Charles Macek, for their oversight and support of the reconstituted AUASB in its first year of operations. The support of the FRC in approving a mutually agreeable strategic direction for the AUASB is greatly appreciated.
Finally, I would also like to express my appreciation to the staff of the AUASB Technical Group, comprising, Richard Mifsud, (Principal Executive), Nina Lewis, Howard Pratt, and Margaret Salter (Senior Project Managers), Bernadette Dillon and Michael Sadhu (Project Managers), Neeta Gobin and Jessie Wong (Assistant Project Managers), as well as Christine Purtell (Executive Assistant) for their work in supporting the AUASB. Thanks are also extended to Leone Mansell (Administration Director) and the administrative staff of the AASB for additional administrative support services provided to the AUASB by the AASB over the past year.
The AUASB going forward
The activities and initiatives undertaken by the AUASB for the year ended 30 June 2005, enable the AUASB to look forward with confidence to the challenges that lie ahead for the forthcoming year. The AUASB’s planned release of the Auditing Standards as statutory standards in the first half of 2006, which will have the force of law for reporting periods commencing on or after 1 July 2006, will undoubtedly be a significant outcome in the year ahead. The AUASB’s efforts and deliberations during 2004-2005 have laid the necessary foundations for the revision and release of these new Auditing Standards. However, much work associated with the exposure of the proposed Auditing Standards and communication of the AUASB’s activities associated with the revisions process lies ahead in the coming months.
SIGNED
Merran H. Kelsall
Chairman of Auditing and Assurance Standards Board
16 September 2005
Auditing and Assurance Standards Board Directors’ report of operations
Technical activities of Auditing and Assurance Standards Board during 2004-05
Establishment of the Auditing and Assurance Standards Board
The establishment of the AUASB was the result of the following two significant amendments that emanated from the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP 9 Act):
- the reconstitution of the Auditing and Assurance Standards Board (AuASB) as a statutory body (AUASB) under the oversight of the FRC; and
- giving auditing standards the force of law for the purposes of the Corporations Act 2001.
On 1 July 2004, the AUASB was reconstituted under section 227A(1) of the Australian Securities and Investments Commission Act 2001 (ASIC Act). The institutional change formally enshrined the functions and powers of the AUASB in legislation, which under section 227B of the ASIC Act are:
- to make auditing standards under section 336 of the Corporations Act 2001, for the purposes of the corporations legislation;
- to formulate auditing and assurance standards for other purposes;
- to formulate guidance on auditing and assurance matters;
- to participate in and contribute to the development of a single set of auditing standards for world-wide use; and
- to advance and promote the main objects of Part I of the Act.
On 1 July 2004, the majority of the Auditing Standards previously issued by the AuASB under the auspices of its predecessor entity, the Australian Accounting Research Foundation (AARF), were granted interim legal endorsement under section 1455(1) of the Corporations Act 2001 and Corporations Regulation 10.5.01. The Auditing Standards with interim legal endorsement do not have effect for financial reports for periods ending after 30 June 2006, under section 1455(4) of the Corporations Act 2001.
Membership and meetings of the AUASB
The responsibility for the appointment, including determination of terms and conditions, of the Chairman and the members of the AUASB resides with the Federal Treasurer and the FRC respectively under section 236F of the ASIC Act. In addition, the period of employment may not exceed five years, at which point retiring members are eligible for reappointment.
Eligibility requirements for appointment are knowledge of, or experience in, business, accounting, auditing, law or government.
Details of the Chairman and the members of the AUASB during 2004-05 are listed at Appendix C. During the year, the AUASB held eight meetings for a total of eight meeting days. Attendance of members at these meetings is set out at Appendix D.
Auditing Standards
The reconstituted AUASB’s initial project was the review of all Auditing Standards issued by its predecessor entities to enable interim legal endorsement to a specific group of Auditing Standards under section 1455(1) of the Corporations Act 2001, and Corporations Regulation 10.5.01. Following this, the AUASB embarked on
- an analysis of the suitability of the structure and content of existing Auditing Standards;
- securing staff and other resources to deliver within the timelines set in the Strategic Direction; and
- finalising the methodology including principles and rules for the review and reissue of Auditing Standards within the formal Strategic Direction issued by the FRC.
A list of Auditing Standards including those with interim legal endorsement, Auditing and Assurance Guidance Statements, Audit and Assurance Guides, Guidance Notes and Audit and Assurance Alerts and their issue dates is at Appendix G.
During the year, the AUASB issued the following documents:
Auditing and assurance guidance statement
AGS 1068 |
Audit Requirements for Australian Financial Services Licensees under the Corporations Act 2001 (October 2004). |
Audit and assurance alert
AAA 14 |
The Implications for Auditors on the Transition to Australian equivalents to IFRSs (October 2004). |
Attendance at meetings of the International Auditing and Assurance Standards Board (IAASB)
During the year, Mr Ian McPhee, AUASB and IAASB member, attended various meetings of the IAASB with the AUASB Principal Executive, Mr Richard Mifsud, as Technical Adviser. Meetings of the IAASB held during the year were as follows:
- 13 to 17 September 2004 in New York.
- 6 to 10 December 2004 in New Orleans.
- 7 to 11 March 2005 in Lima.
- 13 to 17 June 2005 in Rome.
Due process
The AUASB is in the course of formalising a comprehensive due process for consideration of the revised Auditing Standards, which will encourage stakeholders to actively participate in the standards-setting process by:
- communicating its views and policies to key stakeholders via invitations to comment on exposure drafts;
- meeting with representatives of stakeholder organisations;
- inviting public comment on its policies and standards under consideration;
- issuing media releases related to its activities; and
- maintaining a website <www.auasb.gov.au>.
In addition, the AUASB posts highlights of minutes of its meetings on the website to keep interested parties informed of the AUASB’s deliberations during each of its meetings as well as the current status of projects.
Liaison with constituents
The AUASB meets with key stakeholders to discuss the status of the initial phase of the review and revision of Auditing Standards as well as matters in relation to specific projects.
Use of website
The AUASB has a website www.auasb.gov.au which is continuously enhanced to meet stakeholder information needs. The website is used to provide information about the AUASB, its activities and work programme to its stakeholders and interested parties. The AUASB also publishes meeting agendas prior to meetings and meeting highlights after meetings on the website. During the year, the Strategic Direction issued by the FRC for the AUASB’s work programme and in particular, its approach to the setting of Auditing Standards going forward was published on the website.
Accountability
The AUASB Chairman periodically reports on the activities of the AUASB at FRC meetings.
Indemnities and insurance premiums for directors and officers
No indemnities have been given or agreements made in respect of any current or former officer of the AUASB, including FRC Directors. The AUASB has arranged professional indemnity insurance with COMCOVER, to a value of $100 million at a cost of $7,571.
Freedom of information
The AUASB maintains possession of the following documents:
- copies of Auditing Standards with interim legal endorsement;
- copies of media releases;
- AUASB meeting agenda papers;
- correspondence with constituents; and
- internal technical and administrative papers, including project proposals, key decisions, and issues papers.
Requests under the Freedom of Information Act 1982, for access to other documents in the possession of the AUASB can be directed to the AUASB using the contact details set out below.
Commonwealth fraud control guidelines
The AUASB has in place a Fraud Control Plan and fraud control mechanisms which are appropriate to the needs of the AUASB. The AUASB complied with the requirements of the Commonwealth Fraud Control Guidelines for the year ended 30 June 2005.
Commonwealth Disability Strategy
The AUASB is committed to applying the Commonwealth Disability Strategy (CDS) and has instituted activities that contribute to meeting its requirements. The role of the AUASB is specified elsewhere in this report. For the purposes of the CDS, the AUASB performs a Regulator role.
Commonwealth Disability Strategy performance reporting
Requirement for role |
How met |
Provision of accessible policy, programme and regulatory information |
|
Internet format |
AUASB: all news items, policy statements, Auditing and Standards, Assurance Standards, related guidance exposure drafts and other formal regulatory documents are available on a Government Standards compliant website. |
Disk format |
Contact details for the AUASB are available on its website. Users can call or write to request material on disk. |
Plain English communication |
Where possible, general information is written in plain English. However, some financial reporting matters are highly complex and require the accuracy of technical language. |
Consultation |
The AUASB consults widely in its own right, with users, preparers and others interested in financial reporting. Because the nature of AUASB activity is broad, and focuses on capital markets, specific consultation with people with disabilities is generally inappropriate. |
Complaint or grievance mechanisms |
Contact details for the AUASB are available on its website. People can call or write to register any complaint. |
Contacting the Auditing and Assurance Standards Board
The AUASB can be contacted as follows:
Post: |
The Principal Executive |
Telephone: |
(03) 8080 7400 |
Facsimile: |
(03) 8080 7450 |
Document exchange: |
DX 30897 |
E-mail: |
enquiries@auasb.gov.au |